Stock Analysis

Brite-Tech Berhad (KLSE:BTECH) Hasn't Managed To Accelerate Its Returns

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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Brite-Tech Berhad (KLSE:BTECH) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding 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. The formula for this calculation on Brite-Tech Berhad is:

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

0.068 = RM8.1m ÷ (RM131m - RM11m) (Based on the trailing twelve months to December 2022).

Thus, Brite-Tech Berhad has an ROCE of 6.8%. Even though it's in line with the industry average of 6.8%, it's still a low return by itself.

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KLSE:BTECH Return on Capital Employed March 14th 2023

Historical performance is a great place to start when researching a stock so above you can see the gauge for Brite-Tech Berhad's ROCE against it's prior returns. If you'd like to look at how Brite-Tech Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

The returns on capital haven't changed much for Brite-Tech Berhad in recent years. Over the past five years, ROCE has remained relatively flat at around 6.8% and the business has deployed 85% 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.

Our Take On Brite-Tech Berhad's ROCE

In conclusion, Brite-Tech Berhad has been investing more capital into the business, but returns on that capital haven't increased. Although the market must be expecting these trends to improve because the stock has gained 66% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

On a final note, we've found 3 warning signs for Brite-Tech Berhad that we think you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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