Is ViTrox Corporation Berhad (KLSE:VITROX) Likely To Turn Things Around?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Looking at ViTrox Corporation Berhad (KLSE:VITROX), it does have a high ROCE right now, but lets see how returns are trending.

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. Analysts use this formula to calculate it for ViTrox Corporation Berhad:

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

0.30 = RM178m ÷ (RM695m - RM110m) (Based on the trailing twelve months to September 2020).

So, ViTrox Corporation Berhad has an ROCE of 30%. In absolute terms that's a great return and it's even better than the Semiconductor industry average of 12%.

Check out our latest analysis for ViTrox Corporation Berhad

Above you can see how the current ROCE for ViTrox Corporation Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for ViTrox Corporation Berhad.

What Can We Tell From ViTrox Corporation Berhad's ROCE Trend?

On the surface, the trend of ROCE at ViTrox Corporation Berhad doesn't inspire confidence. While it's comforting that the ROCE is high, five years ago it was 42%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line On ViTrox Corporation Berhad's ROCE

While returns have fallen for ViTrox Corporation Berhad in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And the stock has done incredibly well with a 851% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

If you're still interested in ViTrox Corporation Berhad it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

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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