Returns Are Gaining Momentum At Negri Sembilan Oil Palms Berhad (KLSE:NSOP)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Negri Sembilan Oil Palms Berhad's (KLSE:NSOP) returns on capital, so let's have a look.

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. Analysts use this formula to calculate it for Negri Sembilan Oil Palms Berhad:

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

0.0029 = RM2.1m ÷ (RM726m - RM9.1m) (Based on the trailing twelve months to December 2020).

Thus, Negri Sembilan Oil Palms Berhad has an ROCE of 0.3%. In absolute terms, that's a low return and it also under-performs the Food industry average of 7.3%.

View our latest analysis for Negri Sembilan Oil Palms 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'd like to look at how Negri Sembilan Oil Palms Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Negri Sembilan Oil Palms Berhad's ROCE Trend?

Negri Sembilan Oil Palms Berhad has broken into the black (profitability) and we're sure it's a sight for sore eyes. While the business was unprofitable in the past, it's now turned things around and is earning 0.3% on its capital. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. Because in the end, a business can only get so efficient.

In Conclusion...

To bring it all together, Negri Sembilan Oil Palms Berhad has done well to increase the returns it's generating from its capital employed. And since the stock has fallen 15% 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 final note, we found 4 warning signs for Negri Sembilan Oil Palms Berhad (1 is significant) you should be aware of.

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.

If you decide to trade Negri Sembilan Oil Palms Berhad, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.