JAG Berhad (KLSE:JAG) Might Have The Makings Of A Multi-Bagger

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. So when we looked at JAG Berhad (KLSE:JAG) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for JAG Berhad:

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

0.036 = RM9.3m ÷ (RM306m - RM50m) (Based on the trailing twelve months to March 2024).

Therefore, JAG Berhad has an ROCE of 3.6%. In absolute terms, that's a low return and it also under-performs the Commercial Services industry average of 7.5%.

See our latest analysis for JAG Berhad

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

So How Is JAG Berhad's ROCE Trending?

We're delighted to see that JAG Berhad is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 3.6% on its capital. And unsurprisingly, like most companies trying to break into the black, JAG Berhad is utilizing 58% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

Our Take On JAG Berhad's ROCE

In summary, it's great to see that JAG Berhad has managed to break into profitability and is continuing to reinvest in its business. And a remarkable 106% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if JAG Berhad can keep these trends up, it could have a bright future ahead.

JAG Berhad does have some risks though, and we've spotted 3 warning signs for JAG Berhad that you might be interested in.

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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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