Investors Will Want BLD Plantation Bhd's (KLSE:BLDPLNT) Growth In ROCE To Persist

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. So on that note, BLD Plantation Bhd (KLSE:BLDPLNT) looks quite promising in regards to its trends of return on capital.

What Is 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. The formula for this calculation on BLD Plantation Bhd is:

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

0.12 = RM111m ÷ (RM1.4b - RM440m) (Based on the trailing twelve months to June 2022).

Thus, BLD Plantation Bhd has an ROCE of 12%. By itself that's a normal return on capital and it's in line with the industry's average returns of 12%.

Our analysis indicates that BLDPLNT is potentially overvalued!

Historical performance is a great place to start when researching a stock so above you can see the gauge for BLD Plantation Bhd's ROCE against it's prior returns. If you're interested in investigating BLD Plantation Bhd's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For BLD Plantation Bhd Tell Us?

BLD Plantation Bhd is showing promise given that its ROCE is trending up and to the right. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 393% over the last five years. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

Our Take On BLD Plantation Bhd's ROCE

As discussed above, BLD Plantation Bhd appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the stock has only returned 33% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

One more thing, we've spotted 1 warning sign facing BLD Plantation Bhd that you might find interesting.

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.

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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.