Carimin Petroleum Berhad (KLSE:CARIMIN) Might Have The Makings Of A Multi-Bagger

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Carimin Petroleum Berhad (KLSE:CARIMIN) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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 Carimin Petroleum Berhad:

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

0.15 = RM30m ÷ (RM297m - RM96m) (Based on the trailing twelve months to September 2023).

Thus, Carimin Petroleum Berhad has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 9.9% generated by the Energy Services industry.

View our latest analysis for Carimin Petroleum Berhad

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Carimin Petroleum Berhad, check out these free graphs here.

What Can We Tell From Carimin Petroleum Berhad's ROCE Trend?

Carimin Petroleum Berhad's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 298% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line

As discussed above, Carimin Petroleum Berhad appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 49% return over the last five years. In light of that, we think it's worth looking further into this stock because if Carimin Petroleum Berhad can keep these trends up, it could have a bright future ahead.

On a final note, we've found 2 warning signs for Carimin Petroleum Berhad that we think you should be aware of.

While Carimin Petroleum Berhad may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.