PMB Technology Berhad (KLSE:PMBTECH) Could Become A Multi-Bagger

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at the ROCE trend of PMB Technology Berhad (KLSE:PMBTECH) we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for PMB Technology Berhad, this is the formula:

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

0.27 = RM301m ÷ (RM1.6b - RM462m) (Based on the trailing twelve months to June 2022).

So, PMB Technology Berhad has an ROCE of 27%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 13%.

View our latest analysis for PMB Technology Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for PMB Technology Berhad's ROCE against it's prior returns. If you'd like to look at how PMB Technology Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

We like the trends that we're seeing from PMB Technology Berhad. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 27%. The amount of capital employed has increased too, by 557%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 29%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that PMB Technology Berhad has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

In Conclusion...

All in all, it's terrific to see that PMB Technology Berhad is reaping the rewards from prior investments and is growing its capital base. And a remarkable 1,340% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if PMB Technology Berhad can keep these trends up, it could have a bright future ahead.

On a final note, we found 2 warning signs for PMB Technology Berhad (1 doesn't sit too well with us) you should be aware of.

PMB Technology Berhad is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.