MMIS Berhad (KLSE:MMIS) Will Want To Turn Around Its Return Trends

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think MMIS Berhad (KLSE:MMIS) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

We've discovered 5 warning signs about MMIS Berhad. View them for free.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on MMIS Berhad is:

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

0.046 = RM2.9m ÷ (RM74m - RM9.8m) (Based on the trailing twelve months to December 2024).

Thus, MMIS Berhad has an ROCE of 4.6%. In absolute terms, that's a low return but it's around the Semiconductor industry average of 5.5%.

View our latest analysis for MMIS Berhad

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

How Are Returns Trending?

When we looked at the ROCE trend at MMIS Berhad, we didn't gain much confidence. Around five years ago the returns on capital were 54%, but since then they've fallen to 4.6%. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

The Key Takeaway

We're a bit apprehensive about MMIS Berhad because despite more capital being deployed in the business, returns on that capital and sales have both fallen. The market must be rosy on the stock's future because even though the underlying trends aren't too encouraging, the stock has soared 112%. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

If you'd like to know more about MMIS Berhad, we've spotted 5 warning signs, and 3 of them are a bit concerning.

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.