Amtel Holdings Berhad (KLSE:AMTEL) Is Doing The Right Things To Multiply Its Share Price

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. With that in mind, we've noticed some promising trends at Amtel Holdings Berhad (KLSE:AMTEL) 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. Analysts use this formula to calculate it for Amtel Holdings Berhad:

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

0.063 = RM4.3m ÷ (RM84m - RM15m) (Based on the trailing twelve months to May 2023).

Therefore, Amtel Holdings Berhad has an ROCE of 6.3%. Ultimately, that's a low return and it under-performs the Electronic industry average of 14%.

Check out our latest analysis for Amtel Holdings Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Amtel Holdings Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Amtel Holdings Berhad, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

We're delighted to see that Amtel Holdings Berhad is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 6.3% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Amtel Holdings Berhad is utilizing 68% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

On a related note, the company's ratio of current liabilities to total assets has decreased to 18%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Amtel Holdings Berhad has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Key Takeaway

To the delight of most shareholders, Amtel Holdings Berhad has now broken into profitability. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 63% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing to note, we've identified 1 warning sign with Amtel Holdings Berhad and understanding it should be part of your investment process.

While Amtel Holdings 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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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.