The Returns At CSC Steel Holdings Berhad (KLSE:CSCSTEL) Provide Us With Signs Of What's To Come

There are a few key trends to look for if we want to identify the next multi-bagger. 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. However, after investigating CSC Steel Holdings Berhad (KLSE:CSCSTEL), we don't think it's current trends fit the mold of a multi-bagger.

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. The formula for this calculation on CSC Steel Holdings Berhad is:

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

0.047 = RM40m ÷ (RM921m - RM64m) (Based on the trailing twelve months to December 2020).

Thus, CSC Steel Holdings Berhad has an ROCE of 4.7%. In absolute terms, that's a low return, but it's much better than the Metals and Mining industry average of 3.5%.

View our latest analysis for CSC Steel Holdings Berhad

In the above chart we have measured CSC Steel Holdings Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for CSC Steel Holdings Berhad.

The Trend Of ROCE

There hasn't been much to report for CSC Steel Holdings Berhad's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if CSC Steel Holdings Berhad doesn't end up being a multi-bagger in a few years time. With fewer investment opportunities, it makes sense that CSC Steel Holdings Berhad has been paying out a decent 58% of its earnings to shareholders. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

The Key Takeaway

In a nutshell, CSC Steel Holdings Berhad has been trudging along with the same returns from the same amount of capital over the last five years. Although the market must be expecting these trends to improve because the stock has gained 46% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Like most companies, CSC Steel Holdings Berhad does come with some risks, and we've found 2 warning signs that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. 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.
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