Stock Analysis

D'nonce Technology Bhd (KLSE:DNONCE) Is Doing The Right Things To Multiply Its Share Price

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KLSE:DNONCE
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If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 D'nonce Technology Bhd (KLSE:DNONCE) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on D'nonce Technology Bhd is:

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

0.055 = RM12m ÷ (RM250m - RM36m) (Based on the trailing twelve months to March 2022).

Thus, D'nonce Technology Bhd has an ROCE of 5.5%. Ultimately, that's a low return and it under-performs the Packaging industry average of 10%.

See our latest analysis for D'nonce Technology Bhd

roce
KLSE:DNONCE Return on Capital Employed August 12th 2022

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of D'nonce Technology Bhd, check out these free graphs here.

The Trend Of ROCE

The fact that D'nonce Technology Bhd is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 5.5% on its capital. In addition to that, D'nonce Technology Bhd is employing 111% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

On a related note, the company's ratio of current liabilities to total assets has decreased to 14%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that D'nonce Technology Bhd has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On D'nonce Technology Bhd's ROCE

In summary, it's great to see that D'nonce Technology Bhd has managed to break into profitability and is continuing to reinvest in its business. And since the stock has fallen 55% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to continue researching D'nonce Technology Bhd, you might be interested to know about the 2 warning signs that our analysis has discovered.

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.

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

Find out whether D'nonce Technology Bhd 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:DNONCE

D'nonce Technology Bhd

D'nonce Technology Bhd., an investment holding company, engages in the manufacture, sale, and distribution of advanced packaging materials, electronics products, and consumables in Malaysia and Thailand.

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)
Valuation4
Future Growth0
Past Performance2
Financial Health6
Dividends0

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

Flawless balance sheet and good value.