Catcha Digital Berhad (KLSE:CATCHA) Is Doing The Right Things To Multiply Its Share Price

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Catcha Digital Berhad (KLSE:CATCHA) looks quite promising in regards to its trends of return on capital.

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 Catcha Digital Berhad is:

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

0.079 = RM4.7m ÷ (RM71m - RM12m) (Based on the trailing twelve months to March 2024).

So, Catcha Digital Berhad has an ROCE of 7.9%. Ultimately, that's a low return and it under-performs the Interactive Media and Services industry average of 11%.

Check out our latest analysis for Catcha Digital Berhad

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

What Does the ROCE Trend For Catcha Digital Berhad Tell Us?

Catcha Digital Berhad has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 7.9% on its capital. In addition to that, Catcha Digital Berhad is employing 831% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 17% of its operations, which isn't ideal. It's worth keeping an eye on this because as the percentage of current liabilities to total assets increases, some aspects of risk also increase.

Our Take On Catcha Digital Berhad's ROCE

In summary, it's great to see that Catcha Digital Berhad has managed to break into profitability and is continuing to reinvest in its business. And a remarkable 127% 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 Catcha Digital Berhad can keep these trends up, it could have a bright future ahead.

Catcha Digital Berhad does have some risks though, and we've spotted 2 warning signs for Catcha Digital Berhad that you might be interested in.

While Catcha Digital 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