Sern Kou Resources Berhad (KLSE:SERNKOU) Might Have The Makings Of A Multi-Bagger

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. So when we looked at Sern Kou Resources Berhad (KLSE:SERNKOU) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Sern Kou Resources Berhad is:

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

0.11 = RM23m ÷ (RM278m - RM69m) (Based on the trailing twelve months to December 2020).

So, Sern Kou Resources Berhad has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 9.9% generated by the Consumer Durables industry.

View our latest analysis for Sern Kou Resources Berhad

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're interested in investigating Sern Kou Resources Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Sern Kou Resources Berhad's ROCE Trending?

Investors would be pleased with what's happening at Sern Kou Resources Berhad. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 11%. The amount of capital employed has increased too, by 195%. So we're very much inspired by what we're seeing at Sern Kou Resources Berhad thanks to its ability to profitably reinvest capital.

What We Can Learn From Sern Kou Resources Berhad's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Sern Kou Resources Berhad has. Since the stock has returned a staggering 342% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Like most companies, Sern Kou Resources Berhad does come with some risks, and we've found 1 warning sign that you should be aware of.

While Sern Kou 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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