Public Packages Holdings Berhad's (KLSE:PPHB) Returns Have Hit A Wall

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. That's why when we briefly looked at Public Packages Holdings Berhad's (KLSE:PPHB) ROCE trend, we were pretty happy with what we saw.

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. The formula for this calculation on Public Packages Holdings Berhad is:

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

0.12 = RM50m ÷ (RM434m - RM26m) (Based on the trailing twelve months to March 2024).

So, Public Packages Holdings Berhad has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Packaging industry average of 8.6% it's much better.

Check out our latest analysis for Public Packages Holdings Berhad

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

What The Trend Of ROCE Can Tell Us

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 12% for the last five years, and the capital employed within the business has risen 60% in that time. Since 12% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 6.0% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk.

What We Can Learn From Public Packages Holdings Berhad's ROCE

In the end, Public Packages Holdings Berhad has proven its ability to adequately reinvest capital at good rates of return. And long term investors would be thrilled with the 175% return they've received over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you'd like to know about the risks facing Public Packages Holdings Berhad, we've discovered 1 warning sign that you should be aware of.

While Public Packages Holdings 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com