Does CYL Corporation Berhad (KLSE:CYL) Have The Makings Of A Multi-Bagger?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at CYL Corporation Berhad (KLSE:CYL) and its trend of ROCE, we really liked what we saw.

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 CYL Corporation Berhad:

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

0.14 = RM10m ÷ (RM79m - RM7.9m) (Based on the trailing twelve months to October 2020).

Thus, CYL Corporation Berhad has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 11% generated by the Packaging industry.

See our latest analysis for CYL Corporation Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for CYL Corporation Berhad's ROCE against it's prior returns. If you'd like to look at how CYL Corporation Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

CYL Corporation Berhad is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 93% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line On CYL Corporation Berhad's ROCE

As discussed above, CYL Corporation Berhad appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And since the stock has fallen 37% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

CYL Corporation Berhad does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is potentially serious...

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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