If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. In light of that, when we looked at PPB Group Berhad (KLSE:PPB) and its ROCE trend, we weren't exactly thrilled.
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. The formula for this calculation on PPB Group Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.008 = RM223m ÷ (RM30b - RM1.8b) (Based on the trailing twelve months to March 2023).
Thus, PPB Group Berhad has an ROCE of 0.8%. In absolute terms, that's a low return and it also under-performs the Food industry average of 8.5%.
Check out our latest analysis for PPB Group Berhad
Above you can see how the current ROCE for PPB Group Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for PPB Group Berhad.
So How Is PPB Group Berhad's ROCE Trending?
In terms of PPB Group Berhad's historical ROCE trend, it doesn't exactly demand attention. The company has employed 32% more capital in the last five years, and the returns on that capital have remained stable at 0.8%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.
In Conclusion...
Long story short, while PPB Group Berhad has been reinvesting its capital, the returns that it's generating haven't increased. And investors may be recognizing these trends since the stock has only returned a total of 9.1% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.
If you'd like to know more about PPB Group Berhad, we've spotted 2 warning signs, and 1 of them makes us a bit uncomfortable.
While PPB 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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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.
About KLSE:PPB
PPB Group Berhad
An investment holding company, engages in grains and agribusiness worldwide.
Excellent balance sheet, good value and pays a dividend.
