Bumi Armada Berhad (KLSE:ARMADA) Might Have The Makings Of A Multi-Bagger

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Bumi Armada Berhad's (KLSE:ARMADA) returns on capital, so let's have a look.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Bumi Armada Berhad:

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

0.087 = RM945m ÷ (RM13b - RM1.8b) (Based on the trailing twelve months to June 2021).

Therefore, Bumi Armada Berhad has an ROCE of 8.7%. In absolute terms, that's a low return but it's around the Energy Services industry average of 8.0%.

Check out our latest analysis for Bumi Armada Berhad

Above you can see how the current ROCE for Bumi Armada 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.

What Can We Tell From Bumi Armada Berhad's ROCE Trend?

Bumi Armada Berhad has not disappointed in regards to ROCE growth. The figures show that over the last five years, returns on capital have grown by 1,302%. The company is now earning RM0.09 per dollar of capital employed. In regards to capital employed, Bumi Armada Berhad appears to been achieving more with less, since the business is using 31% less capital to run its operation. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

Our Take On Bumi Armada Berhad's ROCE

In a nutshell, we're pleased to see that Bumi Armada Berhad has been able to generate higher returns from less capital. And since the stock has fallen 35% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a separate note, we've found 1 warning sign for Bumi Armada Berhad you'll probably want to know about.

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.

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.

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