SHH Resources Holdings Berhad (KLSE:SHH) Is Experiencing Growth In Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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 when we looked at SHH Resources Holdings Berhad (KLSE:SHH) and its trend of ROCE, we really liked what we saw.

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. The formula for this calculation on SHH Resources Holdings Berhad is:

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

0.046 = RM3.9m ÷ (RM99m - RM16m) (Based on the trailing twelve months to June 2023).

Therefore, SHH Resources Holdings Berhad has an ROCE of 4.6%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 11%.

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

So How Is SHH Resources Holdings Berhad's ROCE Trending?

We're delighted to see that SHH Resources Holdings Berhad is reaping rewards from its investments and has now broken into profitability. The company now earns 4.6% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by SHH Resources Holdings Berhad has remained flat over the period. 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. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

The Key Takeaway

To sum it up, SHH Resources Holdings Berhad is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 219% 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.

If you want to continue researching SHH Resources Holdings Berhad, you might be interested to know about the 2 warning signs that our analysis has discovered.

While SHH Resources Holdings Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.