Stock Analysis

Returns At Teo Guan Lee Corporation Berhad (KLSE:TGL) Are On The Way Up

KLSE:TGL
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If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Teo Guan Lee Corporation Berhad (KLSE:TGL) so let's look a bit deeper.

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

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 Teo Guan Lee Corporation Berhad is:

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

0.065 = RM6.6m ÷ (RM130m - RM28m) (Based on the trailing twelve months to March 2021).

Therefore, Teo Guan Lee Corporation Berhad has an ROCE of 6.5%. In absolute terms, that's a low return and it also under-performs the Specialty Retail industry average of 10.0%.

Check out our latest analysis for Teo Guan Lee Corporation Berhad

roce
KLSE:TGL Return on Capital Employed August 11th 2021

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

How Are Returns Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 6.5%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 25%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Teo Guan Lee Corporation Berhad's ROCE

In summary, it's great to see that Teo Guan Lee Corporation Berhad can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 113% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Teo Guan Lee Corporation Berhad can keep these trends up, it could have a bright future ahead.

Like most companies, Teo Guan Lee Corporation Berhad does come with some risks, and we've found 3 warning signs that you should be aware of.

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.

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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.
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