Cepatwawasan Group Berhad (KLSE:CEPAT) Might Have The Makings Of A Multi-Bagger

What trends should we look for it we want to identify stocks that can 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Cepatwawasan Group Berhad's (KLSE:CEPAT) returns on capital, so let's have a look.

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. The formula for this calculation on Cepatwawasan Group Berhad is:

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

0.063 = RM26m ÷ (RM483m - RM69m) (Based on the trailing twelve months to December 2020).

Thus, Cepatwawasan Group Berhad has an ROCE of 6.3%. In absolute terms, that's a low return but it's around the Food industry average of 7.6%.

View our latest analysis for Cepatwawasan Group Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Cepatwawasan Group Berhad's ROCE against it's prior returns. If you'd like to look at how Cepatwawasan Group Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We're pretty happy with how the ROCE has been trending at Cepatwawasan Group Berhad. We found that the returns on capital employed over the last five years have risen by 212%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Interestingly, the business may be becoming more efficient because it's applying 31% less capital than it was five years ago. Cepatwawasan Group Berhad may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

What We Can Learn From Cepatwawasan Group Berhad's ROCE

In a nutshell, we're pleased to see that Cepatwawasan Group Berhad has been able to generate higher returns from less capital. Considering the stock has delivered 3.6% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Cepatwawasan Group Berhad (of which 1 is potentially serious!) that you should know about.

While Cepatwawasan Group 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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