Wegmans Holdings Berhad (KLSE:WEGMANS) Will Will Want To Turn Around Its Return Trends

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Wegmans Holdings Berhad (KLSE:WEGMANS) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What is it?

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 Wegmans Holdings Berhad:

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

0.089 = RM9.7m ÷ (RM151m - RM42m) (Based on the trailing twelve months to December 2020).

Therefore, Wegmans Holdings Berhad has an ROCE of 8.9%. In absolute terms, that's a low return but it's around the Consumer Durables industry average of 11%.

View our latest analysis for Wegmans Holdings Berhad

Above you can see how the current ROCE for Wegmans Holdings Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

When we looked at the ROCE trend at Wegmans Holdings Berhad, we didn't gain much confidence. To be more specific, ROCE has fallen from 59% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line

In summary, despite lower returns in the short term, we're encouraged to see that Wegmans Holdings Berhad is reinvesting for growth and has higher sales as a result. And the stock has followed suit returning a meaningful 37% to shareholders over the last three years. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

On a final note, we found 3 warning signs for Wegmans Holdings Berhad (1 can't be ignored) you should be aware of.

While Wegmans 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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