HPP Holdings Berhad (KLSE:HPPHB) Will Want To Turn Around Its Return Trends

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating HPP Holdings Berhad (KLSE:HPPHB), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on HPP Holdings Berhad is:

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

0.11 = RM14m ÷ (RM147m - RM13m) (Based on the trailing twelve months to February 2023).

So, HPP Holdings Berhad has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Packaging industry average of 12%.

Check out our latest analysis for HPP Holdings Berhad

Above you can see how the current ROCE for HPP Holdings Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for HPP Holdings Berhad.

SWOT Analysis for HPP Holdings Berhad

What Does the ROCE Trend For HPP Holdings Berhad Tell Us?

When we looked at the ROCE trend at HPP Holdings Berhad, we didn't gain much confidence. To be more specific, ROCE has fallen from 24% over the last four years. However it looks like HPP Holdings Berhad might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Our Take On HPP Holdings Berhad's ROCE

To conclude, we've found that HPP Holdings Berhad is reinvesting in the business, but returns have been falling. Since the stock has declined 27% over the last year, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think HPP Holdings Berhad has the makings of a multi-bagger.

One more thing, we've spotted 2 warning signs facing HPP Holdings Berhad that you might find interesting.

While HPP Holdings Berhad may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.