Mentiga Corporation Berhad (KLSE:MENTIGA) Is Reinvesting At Lower Rates Of Return

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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. 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 briefly looking over the numbers, we don't think Mentiga Corporation Berhad (KLSE:MENTIGA) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 Mentiga Corporation Berhad:

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

0.0054 = RM1.3m ÷ (RM264m - RM24m) (Based on the trailing twelve months to December 2020).

Therefore, Mentiga Corporation Berhad has an ROCE of 0.5%. Ultimately, that's a low return and it under-performs the Forestry industry average of 3.2%.

View our latest analysis for Mentiga Corporation Berhad

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'd like to look at how Mentiga Corporation Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

On the surface, the trend of ROCE at Mentiga Corporation Berhad doesn't inspire confidence. To be more specific, ROCE has fallen from 3.4% over the last five years. However it looks like Mentiga Corporation 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 may take some time before the company starts to see any change in earnings from these investments.

Our Take On Mentiga Corporation Berhad's ROCE

To conclude, we've found that Mentiga Corporation Berhad is reinvesting in the business, but returns have been falling. Unsurprisingly, the stock has only gained 29% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

On a final note, we've found 4 warning signs for Mentiga Corporation Berhad that we think you should be aware of.

While Mentiga Corporation 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.

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