Stock Analysis

The Returns At Rubberex Corporation (M) Berhad (KLSE:RUBEREX) Aren't Growing

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KLSE:HEXCARE
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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Rubberex Corporation (M) Berhad (KLSE:RUBEREX), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

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 Rubberex Corporation (M) Berhad:

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

0.063 = RM39m ÷ (RM643m - RM27m) (Based on the trailing twelve months to June 2022).

Therefore, Rubberex Corporation (M) Berhad has an ROCE of 6.3%. In absolute terms, that's a low return and it also under-performs the Household Products industry average of 9.2%.

See our latest analysis for Rubberex Corporation (M) Berhad

roce
KLSE:RUBEREX Return on Capital Employed August 30th 2022

Historical performance is a great place to start when researching a stock so above you can see the gauge for Rubberex Corporation (M) Berhad's ROCE against it's prior returns. If you're interested in investigating Rubberex Corporation (M) Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

In terms of Rubberex Corporation (M) Berhad's historical ROCE trend, it doesn't exactly demand attention. Over the past five years, ROCE has remained relatively flat at around 6.3% and the business has deployed 93% more capital into its operations. 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.

On a side note, Rubberex Corporation (M) Berhad has done well to reduce current liabilities to 4.2% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Bottom Line

In summary, Rubberex Corporation (M) Berhad has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has gained an impressive 78% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

One more thing, we've spotted 2 warning signs facing Rubberex Corporation (M) Berhad that you might find interesting.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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

Find out whether Hextar Healthcare 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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About KLSE:HEXCARE

Hextar Healthcare Berhad

Hextar Healthcare Berhad manufactures and sells test kits and other healthcare related products and services.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation2
Future Growth0
Past Performance1
Financial Health6
Dividends0

Read more about these checks in the individual report sections or in our analysis model.

Flawless balance sheet and slightly overvalued.