Our Take On The Returns On Capital At Pantech Group Holdings Berhad (KLSE:PANTECH)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Pantech Group Holdings Berhad (KLSE:PANTECH), we don't think it's current trends fit the mold of a multi-bagger.

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

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 Pantech Group Holdings Berhad:

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

0.054 = RM39m ÷ (RM896m - RM164m) (Based on the trailing twelve months to August 2020).

So, Pantech Group Holdings Berhad has an ROCE of 5.4%. In absolute terms, that's a low return, but it's much better than the Metals and Mining industry average of 2.5%.

View our latest analysis for Pantech Group Holdings Berhad

In the above chart we have measured Pantech Group Holdings Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Pantech Group Holdings Berhad here for free.

What Can We Tell From Pantech Group Holdings Berhad's ROCE Trend?

In terms of Pantech Group Holdings Berhad's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 11%, but since then they've fallen to 5.4%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. 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.

The Bottom Line

In summary, Pantech Group Holdings Berhad is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Unsurprisingly then, the total return to shareholders over the last five years has been flat. Therefore based on the analysis done in this article, we don't think Pantech Group Holdings Berhad has the makings of a multi-bagger.

On a separate note, we've found 3 warning signs for Pantech Group Holdings Berhad you'll probably want to know about.

While Pantech Group 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.

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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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