Citra Nusa Holdings Berhad (KLSE:CNH) Might Have The Makings Of A Multi-Bagger

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. 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, Citra Nusa Holdings Berhad (KLSE:CNH) 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. To calculate this metric for Citra Nusa Holdings Berhad, this is the formula:

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

0.015 = RM1.1m ÷ (RM87m - RM14m) (Based on the trailing twelve months to June 2022).

Therefore, Citra Nusa Holdings Berhad has an ROCE of 1.5%. In absolute terms, that's a low return and it also under-performs the Retail Distributors industry average of 8.2%.

See our latest analysis for Citra Nusa Holdings Berhad

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

So How Is Citra Nusa Holdings Berhad's ROCE Trending?

Shareholders will be relieved that Citra Nusa Holdings Berhad has broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 1.5%, which is always encouraging. While returns have increased, the amount of capital employed by Citra Nusa Holdings Berhad has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. Because in the end, a business can only get so efficient.

What We Can Learn From Citra Nusa Holdings Berhad's ROCE

To bring it all together, Citra Nusa Holdings Berhad has done well to increase the returns it's generating from its capital employed. Astute investors may have an opportunity here because the stock has declined 11% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing: We've identified 3 warning signs with Citra Nusa Holdings Berhad (at least 2 which can't be ignored) , and understanding them would certainly be useful.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.