Has Perusahaan Sadur Timah Malaysia (Perstima) Berhad (KLSE:PERSTIM) Got What It Takes To Become A Multi-Bagger?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. Although, when we looked at Perusahaan Sadur Timah Malaysia (Perstima) Berhad (KLSE:PERSTIM), it didn't seem to tick all of these boxes.

What is Return On Capital Employed (ROCE)?

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 Perusahaan Sadur Timah Malaysia (Perstima) Berhad:

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

0.11 = RM55m ÷ (RM543m - RM48m) (Based on the trailing twelve months to December 2020).

Therefore, Perusahaan Sadur Timah Malaysia (Perstima) Berhad has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Metals and Mining industry average of 2.9% it's much better.

View our latest analysis for Perusahaan Sadur Timah Malaysia (Perstima) Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Perusahaan Sadur Timah Malaysia (Perstima) Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Perusahaan Sadur Timah Malaysia (Perstima) Berhad, check out these free graphs here.

What Can We Tell From Perusahaan Sadur Timah Malaysia (Perstima) Berhad's ROCE Trend?

In terms of Perusahaan Sadur Timah Malaysia (Perstima) Berhad's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 18%, but since then they've fallen to 11%. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

In Conclusion...

We're a bit apprehensive about Perusahaan Sadur Timah Malaysia (Perstima) Berhad because despite more capital being deployed in the business, returns on that capital and sales have both fallen. And long term shareholders have watched their investments stay flat over the last five years. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Perusahaan Sadur Timah Malaysia (Perstima) Berhad (of which 1 is potentially serious!) that you should know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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