Prolexus Berhad (KLSE:PRLEXUS) Will Want To Turn Around Its Return Trends

By
Simply Wall St
Published
March 17, 2022
KLSE:PRLEXUS
Source: Shutterstock

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. However, after investigating Prolexus Berhad (KLSE:PRLEXUS), we don't think it's current trends fit the mold of a multi-bagger.

What is 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 Prolexus Berhad is:

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

0.021 = RM7.5m ÷ (RM403m - RM53m) (Based on the trailing twelve months to October 2021).

Thus, Prolexus Berhad has an ROCE of 2.1%. In absolute terms, that's a low return and it also under-performs the Luxury industry average of 5.3%.

View our latest analysis for Prolexus Berhad

roce
KLSE:PRLEXUS Return on Capital Employed March 17th 2022

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Prolexus Berhad, check out these free graphs here.

How Are Returns Trending?

When we looked at the ROCE trend at Prolexus Berhad, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 2.1% from 17% five years ago. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

The Key Takeaway

We're a bit apprehensive about Prolexus Berhad because despite more capital being deployed in the business, returns on that capital and sales have both fallen. Long term shareholders who've owned the stock over the last five years have experienced a 58% depreciation in their investment, so it appears the market might not like these trends either. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

One final note, you should learn about the 3 warning signs we've spotted with Prolexus Berhad (including 1 which doesn't sit too well with us) .

While Prolexus 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.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.