Stock Analysis

Yinson Holdings Berhad (KLSE:YINSON) Has Some Way To Go To Become A Multi-Bagger

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If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Yinson Holdings Berhad (KLSE:YINSON), it didn't seem to tick all of these boxes.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Yinson Holdings Berhad:

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

0.087 = RM1.4b ÷ (RM19b - RM2.6b) (Based on the trailing twelve months to January 2023).

Therefore, Yinson Holdings Berhad has an ROCE of 8.7%. On its own, that's a low figure but it's around the 7.6% average generated by the Energy Services industry.

View our latest analysis for Yinson Holdings Berhad

KLSE:YINSON Return on Capital Employed March 29th 2023

Above you can see how the current ROCE for Yinson Holdings 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 Yinson Holdings Berhad here for free.

What Can We Tell From Yinson Holdings Berhad's ROCE Trend?

There are better returns on capital out there than what we're seeing at Yinson Holdings Berhad. The company has consistently earned 8.7% for the last five years, and the capital employed within the business has risen 192% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Key Takeaway

In conclusion, Yinson Holdings Berhad has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has gained an impressive 62% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Yinson Holdings Berhad does have some risks, we noticed 4 warning signs (and 2 which can't be ignored) we think you should know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

Valuation is complex, but we're helping make it simple.

Find out whether Yinson Holdings Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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