The Returns At Genting Malaysia Berhad (KLSE:GENM) Aren't Growing

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Genting Malaysia Berhad (KLSE:GENM) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding 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 Genting Malaysia Berhad:

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

0.042 = RM1.0b ÷ (RM29b - RM3.7b) (Based on the trailing twelve months to December 2022).

So, Genting Malaysia Berhad has an ROCE of 4.2%. On its own, that's a low figure but it's around the 5.1% average generated by the Hospitality industry.

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'd like, you can check out the forecasts from the analysts covering Genting Malaysia Berhad here for free.

What Does the ROCE Trend For Genting Malaysia Berhad Tell Us?

Things have been pretty stable at Genting Malaysia Berhad, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So unless we see a substantial change at Genting Malaysia Berhad in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. That being the case, it makes sense that Genting Malaysia Berhad has been paying out 67% of its earnings to its 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.

The Key Takeaway

In summary, Genting Malaysia Berhad isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And in the last five years, the stock has given away 34% so the market doesn't look too hopeful on these trends strengthening any time soon. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

One more thing: We've identified 2 warning signs with Genting Malaysia Berhad (at least 1 which is a bit concerning) , and understanding them would certainly be useful.

While Genting Malaysia 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.