Returns Are Gaining Momentum At SHH Resources Holdings Berhad (KLSE:SHH)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, SHH Resources Holdings Berhad (KLSE:SHH) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

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 SHH Resources Holdings Berhad:

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

0.023 = RM2.0m ÷ (RM101m - RM17m) (Based on the trailing twelve months to September 2023).

So, SHH Resources Holdings Berhad has an ROCE of 2.3%. In absolute terms, that's a low return and it also under-performs the Consumer Durables industry average of 11%.

See our latest analysis for SHH Resources Holdings Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for SHH Resources Holdings Berhad's ROCE against it's prior returns. If you'd like to look at how SHH Resources Holdings Berhad has performed in the past in other metrics, you can view this free graph of SHH Resources Holdings Berhad's past earnings, revenue and cash flow.

How Are Returns Trending?

We're delighted to see that SHH Resources Holdings Berhad is reaping rewards from its investments and has now broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 2.3% on its capital. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. Because in the end, a business can only get so efficient.

The Key Takeaway

To bring it all together, SHH Resources Holdings Berhad has done well to increase the returns it's generating from its capital employed. And a remarkable 364% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing to note, we've identified 2 warning signs with SHH Resources Holdings Berhad and understanding them should be part of your investment process.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.