Slowing Rates Of Return At CAM Resources Berhad (KLSE:CAMRES) Leave Little Room For Excitement

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating CAM Resources Berhad (KLSE:CAMRES), we don't think it's current trends fit the mold of a multi-bagger.

Understanding 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 CAM Resources Berhad:

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

0.065 = RM8.8m ÷ (RM184m - RM47m) (Based on the trailing twelve months to March 2021).

Therefore, CAM Resources Berhad has an ROCE of 6.5%. In absolute terms, that's a low return and it also under-performs the Consumer Durables industry average of 12%.

See our latest analysis for CAM Resources Berhad

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

What Does the ROCE Trend For CAM Resources Berhad Tell Us?

There hasn't been much to report for CAM Resources Berhad's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at CAM Resources Berhad in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

Our Take On CAM Resources Berhad's ROCE

In summary, CAM Resources Berhad isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And with the stock having returned a mere 8.2% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you'd like to know more about CAM Resources Berhad, we've spotted 2 warning signs, and 1 of them doesn't sit too well with us.

While CAM Resources Berhad may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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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