Should We Be Excited About The Trends Of Returns At Bermaz Auto Berhad (KLSE:BAUTO)?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. However, after investigating Bermaz Auto Berhad (KLSE:BAUTO), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Bermaz Auto Berhad:

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

0.071 = RM63m ÷ (RM1.4b - RM491m) (Based on the trailing twelve months to January 2021).

So, Bermaz Auto Berhad has an ROCE of 7.1%. On its own that's a low return on capital but it's in line with the industry's average returns of 7.1%.

View our latest analysis for Bermaz Auto Berhad

Above you can see how the current ROCE for Bermaz Auto Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Bermaz Auto Berhad here for free.

What Can We Tell From Bermaz Auto Berhad's ROCE Trend?

In terms of Bermaz Auto Berhad's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 41%, but since then they've fallen to 7.1%. However it looks like Bermaz Auto Berhad might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

In Conclusion...

In summary, Bermaz Auto Berhad is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors appear hesitant that the trends will pick up because the stock has fallen 11% 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.

If you want to continue researching Bermaz Auto Berhad, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Bermaz Auto 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.

When trading Bermaz Auto 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 (at) simplywallst.com.