The Returns At Damansara Holdings Berhad (KLSE:DBHD) Provide Us With Signs Of What's To Come

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. Having said that, from a first glance at Damansara Holdings Berhad (KLSE:DBHD) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Damansara Holdings Berhad:

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

0.074 = RM18m ÷ (RM381m - RM144m) (Based on the trailing twelve months to September 2020).

Therefore, Damansara Holdings Berhad has an ROCE of 7.4%. In absolute terms, that's a low return, but it's much better than the Commercial Services industry average of 5.2%.

Check out our latest analysis for Damansara Holdings Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Damansara Holdings Berhad's ROCE against it's prior returns. If you're interested in investigating Damansara Holdings Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

Over the past five years, Damansara Holdings Berhad's ROCE and capital employed have both remained mostly flat. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So unless we see a substantial change at Damansara Holdings Berhad in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

In Conclusion...

We can conclude that in regards to Damansara Holdings Berhad's returns on capital employed and the trends, there isn't much change to report on. And in the last five years, the stock has given away 50% so the market doesn't look too hopeful on these trends strengthening any time soon. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

One more thing: We've identified 3 warning signs with Damansara Holdings Berhad (at least 1 which is concerning) , and understanding these would certainly be useful.

While Damansara Holdings Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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