Greatech Technology Berhad (KLSE:GREATEC) Might Become A Compounding Machine

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Ergo, when we looked at the ROCE trends at Greatech Technology Berhad (KLSE:GREATEC), we liked what we saw.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Greatech Technology Berhad, this is the formula:

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

0.23 = RM111m ÷ (RM758m - RM270m) (Based on the trailing twelve months to March 2022).

So, Greatech Technology Berhad has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Semiconductor industry average of 16%.

Check out our latest analysis for Greatech Technology Berhad

In the above chart we have measured Greatech Technology Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Greatech Technology Berhad here for free.

What Does the ROCE Trend For Greatech Technology Berhad Tell Us?

In terms of Greatech Technology Berhad's history of ROCE, it's quite impressive. The company has employed 1,253% more capital in the last five years, and the returns on that capital have remained stable at 23%. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. You'll see this when looking at well operated businesses or favorable business models.

Our Take On Greatech Technology Berhad's ROCE

In short, we'd argue Greatech Technology Berhad has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And the stock has done incredibly well with a 544% return over the last three years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation on our platform that is definitely worth checking out.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.