Return Trends At YB Ventures Berhad (KLSE:YB) Aren't Appealing

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating YB Ventures Berhad (KLSE:YB), we don't think it's current trends fit the mold of a multi-bagger.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for YB Ventures Berhad:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.042 = RM13m ÷ (RM319m - RM17m) (Based on the trailing twelve months to March 2021).

Therefore, YB Ventures Berhad has an ROCE of 4.2%. In absolute terms, that's a low return and it also under-performs the Building industry average of 6.1%.

See our latest analysis for YB Ventures Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for YB Ventures Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of YB Ventures Berhad, check out these free graphs here.

The Trend Of ROCE

The returns on capital haven't changed much for YB Ventures Berhad in recent years. Over the past five years, ROCE has remained relatively flat at around 4.2% and the business has deployed 39% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

In Conclusion...

Long story short, while YB Ventures Berhad has been reinvesting its capital, the returns that it's generating haven't increased. Unsurprisingly, the stock has only gained 18% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

One final note, you should learn about the 2 warning signs we've spotted with YB Ventures Berhad (including 1 which is potentially serious) .

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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