Trends At Magni-Tech Industries Berhad (KLSE:MAGNI) Point To A Promising Future

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at Magni-Tech Industries Berhad's (KLSE:MAGNI) ROCE trend, we were very happy with what we saw.

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 Magni-Tech Industries Berhad:

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

0.22 = RM139m ÷ (RM720m - RM85m) (Based on the trailing twelve months to July 2020).

So, Magni-Tech Industries Berhad has an ROCE of 22%. That's a fantastic return and not only that, it outpaces the average of 8.6% earned by companies in a similar industry.

View our latest analysis for Magni-Tech Industries Berhad

In the above chart we have measured Magni-Tech Industries Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Magni-Tech Industries Berhad here for free.

The Trend Of ROCE

Magni-Tech Industries Berhad deserves to be commended in regards to it's returns. The company has consistently earned 22% for the last five years, and the capital employed within the business has risen 115% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

The Bottom Line

In short, we'd argue Magni-Tech Industries Berhad has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. On top of that, the stock has rewarded shareholders with a remarkable 103% return to those who've held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

On a separate note, we've found 1 warning sign for Magni-Tech Industries Berhad you'll probably want to know about.

Magni-Tech Industries Berhad is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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