Return Trends At Hai-O Enterprise Berhad (KLSE:HAIO) Aren't Appealing

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. That's why when we briefly looked at Hai-O Enterprise Berhad's (KLSE:HAIO) ROCE trend, we were pretty happy with what we saw.

Return On Capital Employed (ROCE): What is it?

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 Hai-O Enterprise Berhad:

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

0.16 = RM50m ÷ (RM371m - RM51m) (Based on the trailing twelve months to January 2021).

Therefore, Hai-O Enterprise Berhad has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Online Retail industry average of 10% it's much better.

See our latest analysis for Hai-O Enterprise Berhad

Above you can see how the current ROCE for Hai-O Enterprise 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 Hai-O Enterprise Berhad here for free.

The Trend Of ROCE

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 16% for the last five years, and the capital employed within the business has risen 24% in that time. 16% is a pretty standard return, and it provides some comfort knowing that Hai-O Enterprise Berhad has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

What We Can Learn From Hai-O Enterprise Berhad's ROCE

To sum it up, Hai-O Enterprise Berhad has simply been reinvesting capital steadily, at those decent rates of return. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

If you want to continue researching Hai-O Enterprise Berhad, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Hai-O Enterprise 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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