Return Trends At IHH Healthcare Berhad (KLSE:IHH) Aren't Appealing

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think IHH Healthcare Berhad (KLSE:IHH) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding 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 IHH Healthcare Berhad is:

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

0.045 = RM1.8b ÷ (RM45b - RM5.5b) (Based on the trailing twelve months to March 2021).

Thus, IHH Healthcare Berhad has an ROCE of 4.5%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 9.7%.

See our latest analysis for IHH Healthcare Berhad

Above you can see how the current ROCE for IHH Healthcare 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 IHH Healthcare Berhad.

What Does the ROCE Trend For IHH Healthcare Berhad Tell Us?

In terms of IHH Healthcare Berhad's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 4.5% for the last five years, and the capital employed within the business has risen 26% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line

In summary, IHH Healthcare Berhad has simply been reinvesting capital and generating the same low rate of return as before. And investors appear hesitant that the trends will pick up because the stock has fallen 13% in the last five years. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

On a final note, we've found 1 warning sign for IHH Healthcare Berhad that we think you should be aware of.

While IHH Healthcare Berhad 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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