Does Thong Guan Industries Berhad (KLSE:TGUAN) Have The Makings Of A Multi-Bagger?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Thong Guan Industries Berhad (KLSE:TGUAN) so let's look a bit deeper.

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. Analysts use this formula to calculate it for Thong Guan Industries Berhad:

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

0.13 = RM95m ÷ (RM910m - RM185m) (Based on the trailing twelve months to September 2020).

So, Thong Guan Industries Berhad has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Packaging industry average of 11% it's much better.

See our latest analysis for Thong Guan Industries Berhad

Above you can see how the current ROCE for Thong Guan Industries Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Thong Guan Industries Berhad.

So How Is Thong Guan Industries Berhad's ROCE Trending?

Investors would be pleased with what's happening at Thong Guan Industries Berhad. Over the last five years, returns on capital employed have risen substantially to 13%. The amount of capital employed has increased too, by 77%. So we're very much inspired by what we're seeing at Thong Guan Industries Berhad thanks to its ability to profitably reinvest capital.

The Bottom Line On Thong Guan Industries Berhad's ROCE

To sum it up, Thong Guan Industries Berhad has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 109% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Thong Guan Industries Berhad can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Thong Guan Industries Berhad, we've discovered 2 warning signs that you should be aware of.

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.

When trading Thong Guan Industries Berhad or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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