Mentiga Corporation Berhad (KLSE:MENTIGA) Might Have The Makings Of A Multi-Bagger

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Mentiga Corporation Berhad's (KLSE:MENTIGA) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Mentiga Corporation Berhad is:

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

0.0077 = RM1.8m ÷ (RM262m - RM25m) (Based on the trailing twelve months to March 2021).

Therefore, Mentiga Corporation Berhad has an ROCE of 0.8%. In absolute terms, that's a low return and it also under-performs the Forestry industry average of 3.5%.

View our latest analysis for Mentiga Corporation Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Mentiga Corporation Berhad's ROCE against it's prior returns. If you're interested in investigating Mentiga Corporation Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Mentiga Corporation Berhad Tell Us?

Mentiga Corporation Berhad has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 0.8% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Mentiga Corporation Berhad is utilizing 38% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

What We Can Learn From Mentiga Corporation Berhad's ROCE

Long story short, we're delighted to see that Mentiga Corporation Berhad's reinvestment activities have paid off and the company is now profitable. And with a respectable 61% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know about the risks facing Mentiga Corporation Berhad, we've discovered 4 warning signs that you should be aware of.

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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