Optimax Holdings Berhad (KLSE:OPTIMAX) Is Reinvesting To Multiply In Value

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over Optimax Holdings Berhad's (KLSE:OPTIMAX) trend of ROCE, we really liked what we saw.

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. Analysts use this formula to calculate it for Optimax Holdings Berhad:

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

0.32 = RM26m ÷ (RM100m - RM17m) (Based on the trailing twelve months to June 2022).

So, Optimax Holdings Berhad has an ROCE of 32%. In absolute terms that's a great return and it's even better than the Healthcare industry average of 21%.

Check out the opportunities and risks within the MY Healthcare industry.

Above you can see how the current ROCE for Optimax Holdings Berhad 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 Optimax Holdings Berhad here for free.

The Trend Of ROCE

We'd be pretty happy with returns on capital like Optimax Holdings Berhad. The company has employed 209% more capital in the last five years, and the returns on that capital have remained stable at 32%. Now considering ROCE is an attractive 32%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Optimax Holdings Berhad can keep this up, we'd be very optimistic about its future.

The Key Takeaway

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. And since the stock has risen strongly over the last year, it appears the market might expect this trend to continue. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Optimax Holdings Berhad does have some risks though, and we've spotted 2 warning signs for Optimax Holdings Berhad that you might be interested in.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.