Stock Analysis

Should We Be Excited About The Trends Of Returns At Eonmetall Group Berhad (KLSE:EMETALL)?

KLSE:EMETALL
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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. However, after investigating Eonmetall Group Berhad (KLSE:EMETALL), we don't think it's current trends fit the mold of a multi-bagger.

What is 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. To calculate this metric for Eonmetall Group Berhad, this is the formula:

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

0.022 = RM6.8m ÷ (RM467m - RM158m) (Based on the trailing twelve months to September 2020).

Therefore, Eonmetall Group Berhad has an ROCE of 2.2%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 3.3%.

See our latest analysis for Eonmetall Group Berhad

roce
KLSE:EMETALL Return on Capital Employed November 29th 2020

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 Eonmetall Group Berhad, check out these free graphs here.

So How Is Eonmetall Group Berhad's ROCE Trending?

On the surface, the trend of ROCE at Eonmetall Group Berhad doesn't inspire confidence. To be more specific, ROCE has fallen from 3.9% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line On Eonmetall Group Berhad's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Eonmetall Group Berhad is reinvesting for growth and has higher sales as a result. And the stock has done incredibly well with a 146% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

Eonmetall Group Berhad does come with some risks though, we found 5 warning signs in our investment analysis, and 2 of those are significant...

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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