Sasbadi Holdings Berhad (KLSE:SASBADI) Has More To Do To Multiply In Value Going Forward

What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Sasbadi Holdings Berhad (KLSE:SASBADI), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Sasbadi Holdings Berhad:

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

0.066 = RM11m ÷ (RM203m - RM41m) (Based on the trailing twelve months to February 2023).

Therefore, Sasbadi Holdings Berhad has an ROCE of 6.6%. Ultimately, that's a low return and it under-performs the Media industry average of 10%.

Check out our latest analysis for Sasbadi Holdings Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Sasbadi Holdings Berhad's ROCE against it's prior returns. If you're interested in investigating Sasbadi Holdings Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Sasbadi Holdings Berhad's ROCE Trend?

There hasn't been much to report for Sasbadi Holdings Berhad's returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So unless we see a substantial change at Sasbadi Holdings Berhad in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

The Bottom Line

In summary, Sasbadi Holdings Berhad isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And investors appear hesitant that the trends will pick up because the stock has fallen 42% in the last five years. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

Sasbadi Holdings Berhad does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those can't be ignored...

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.

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

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.