Returns On Capital At PMB Technology Berhad (KLSE:PMBTECH) Have Stalled

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think PMB Technology Berhad (KLSE:PMBTECH) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on PMB Technology Berhad is:

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

0.036 = RM49m ÷ (RM2.1b - RM769m) (Based on the trailing twelve months to December 2023).

Therefore, PMB Technology Berhad has an ROCE of 3.6%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 6.0%.

View our latest analysis for PMB Technology Berhad

In the above chart we have measured PMB Technology Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for PMB Technology Berhad .

What Can We Tell From PMB Technology Berhad's ROCE Trend?

The returns on capital haven't changed much for PMB Technology Berhad in recent years. Over the past five years, ROCE has remained relatively flat at around 3.6% and the business has deployed 175% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Key Takeaway

In conclusion, PMB Technology Berhad has been investing more capital into the business, but returns on that capital haven't increased. Yet to long term shareholders the stock has gifted them an incredible 326% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

One more thing: We've identified 5 warning signs with PMB Technology Berhad (at least 3 which shouldn't be ignored) , and understanding them would certainly be useful.

While PMB Technology Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.