Stock Analysis

Spritzer Bhd (KLSE:SPRITZER) Will Will Want To Turn Around Its Return Trends

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To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. However, after investigating Spritzer Bhd (KLSE:SPRITZER), we don't think it's current trends fit the mold of a multi-bagger.

What is 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. To calculate this metric for Spritzer Bhd, this is the formula:

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

0.083 = RM38m ÷ (RM517m - RM55m) (Based on the trailing twelve months to December 2020).

So, Spritzer Bhd has an ROCE of 8.3%. In absolute terms, that's a low return and it also under-performs the Beverage industry average of 18%.

View our latest analysis for Spritzer Bhd

KLSE:SPRITZER Return on Capital Employed May 12th 2021

Above you can see how the current ROCE for Spritzer Bhd 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 Spritzer Bhd here for free.

How Are Returns Trending?

On the surface, the trend of ROCE at Spritzer Bhd doesn't inspire confidence. Around five years ago the returns on capital were 15%, but since then they've fallen to 8.3%. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

On a side note, Spritzer Bhd has done well to pay down its current liabilities to 11% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

Our Take On Spritzer Bhd's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Spritzer Bhd have fallen, meanwhile the business is employing more capital than it was five years ago. And, the stock has remained flat over the last five years, so investors don't seem too impressed either. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

On a final note, we found 2 warning signs for Spritzer Bhd (1 is concerning) you should be aware of.

While Spritzer Bhd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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