Returns On Capital At Genting Malaysia Berhad (KLSE:GENM) Have Stalled

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Genting Malaysia Berhad (KLSE:GENM) 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. The formula for this calculation on Genting Malaysia Berhad is:

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

0.058 = RM1.5b ÷ (RM30b - RM3.5b) (Based on the trailing twelve months to March 2024).

Therefore, Genting Malaysia Berhad has an ROCE of 5.8%. In absolute terms, that's a low return but it's around the Hospitality industry average of 5.1%.

View our latest analysis for Genting Malaysia Berhad

Above you can see how the current ROCE for Genting Malaysia 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 analyst report for Genting Malaysia Berhad .

What Can We Tell From Genting Malaysia Berhad's ROCE Trend?

There hasn't been much to report for Genting Malaysia Berhad's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Genting Malaysia Berhad to be a multi-bagger going forward. On top of that you'll notice that Genting Malaysia Berhad has been paying out a large portion (87%) of earnings in the form of dividends to shareholders. These mature businesses typically have reliable earnings and not many places to reinvest them, so the next best option is to put the earnings into shareholders pockets.

What We Can Learn From Genting Malaysia Berhad's ROCE

In summary, Genting Malaysia Berhad isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Unsurprisingly, the stock has only gained 1.0% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

On a final note, we've found 3 warning signs for Genting Malaysia Berhad that we think you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com