If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Artroniq Berhad (KLSE:ARTRONIQ) looks quite promising in regards to its trends of return on capital.
Understanding 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. Analysts use this formula to calculate it for Artroniq Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.036 = RM1.8m ÷ (RM61m - RM12m) (Based on the trailing twelve months to June 2022).
Therefore, Artroniq Berhad has an ROCE of 3.6%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 8.3%.
Historical performance is a great place to start when researching a stock so above you can see the gauge for Artroniq Berhad's ROCE against it's prior returns. If you're interested in investigating Artroniq Berhad's past further, check out this free graph of past earnings, revenue and cash flow.
What Does the ROCE Trend For Artroniq Berhad Tell Us?
The fact that Artroniq Berhad is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 3.6% on its capital. In addition to that, Artroniq Berhad is employing 46% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.
Our Take On Artroniq Berhad's ROCE
To the delight of most shareholders, Artroniq Berhad has now broken into profitability. Since the stock has returned a staggering 131% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.
Artroniq Berhad does have some risks though, and we've spotted 3 warning signs for Artroniq Berhad that you might be interested in.
While Artroniq Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
Artroniq Berhad, an investment holding company, manufactures and sells polyethylene compounds for wire and cable insulation, and jacketing in Malaysia, Asia, the Middle East, the Americas, and internationally.
Flawless balance sheet with acceptable track record.