Hume Cement Industries Berhad (KLSE:HUMEIND) Might Have The Makings Of A Multi-Bagger

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Hume Cement Industries Berhad (KLSE:HUMEIND) looks quite promising in regards to its trends of return on capital.

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

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. Analysts use this formula to calculate it for Hume Cement Industries Berhad:

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

0.095 = RM58m ÷ (RM1.3b - RM670m) (Based on the trailing twelve months to March 2023).

So, Hume Cement Industries Berhad has an ROCE of 9.5%. In absolute terms, that's a low return, but it's much better than the Basic Materials industry average of 3.9%.

View our latest analysis for Hume Cement Industries Berhad

Above you can see how the current ROCE for Hume Cement Industries Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

You'd find it hard not to be impressed with the ROCE trend at Hume Cement Industries Berhad. The figures show that over the last five years, returns on capital have grown by 13,796%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Interestingly, the business may be becoming more efficient because it's applying 28% less capital than it was five years ago. Hume Cement Industries Berhad may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

On a side note, Hume Cement Industries Berhad's current liabilities are still rather high at 52% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

In Conclusion...

In a nutshell, we're pleased to see that Hume Cement Industries Berhad has been able to generate higher returns from less capital. Since the stock has only returned 38% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

Hume Cement Industries Berhad does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable...

While Hume Cement Industries Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.