Stock Analysis

One Glove Group Berhad (KLSE:ONEGLOVE) Will Want To Turn Around Its Return Trends

KLSE:ONEGLOVE
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What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. However, after briefly looking over the numbers, we don't think One Glove Group Berhad (KLSE:ONEGLOVE) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for One Glove Group Berhad:

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

0.0013 = RM402k ÷ (RM351m - RM43m) (Based on the trailing twelve months to June 2022).

Therefore, One Glove Group Berhad has an ROCE of 0.1%. Ultimately, that's a low return and it under-performs the Medical Equipment industry average of 11%.

See our latest analysis for One Glove Group Berhad

roce
KLSE:ONEGLOVE Return on Capital Employed March 27th 2023

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're interested in investigating One Glove Group Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For One Glove Group Berhad Tell Us?

On the surface, the trend of ROCE at One Glove Group Berhad doesn't inspire confidence. To be more specific, ROCE has fallen from 1.6% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

On a related note, One Glove Group Berhad has decreased its current liabilities to 12% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

The Bottom Line

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for One Glove Group Berhad. Furthermore the stock has climbed 47% over the last five years, it would appear that investors are upbeat about the future. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

If you'd like to know more about One Glove Group Berhad, we've spotted 4 warning signs, and 1 of them is a bit unpleasant.

While One Glove Group 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.

Valuation is complex, but we're helping make it simple.

Find out whether One Glove Group Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.