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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Cnergenz Berhad (KLSE:CNERGEN), we don't think it's current trends fit the mold of a multi-bagger.
Return On Capital Employed (ROCE): What Is It?
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. To calculate this metric for Cnergenz Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.028 = RM4.6m ÷ (RM193m - RM28m) (Based on the trailing twelve months to March 2025).
Therefore, Cnergenz Berhad has an ROCE of 2.8%. Ultimately, that's a low return and it under-performs the Electronic industry average of 10%.
Check out our latest analysis for Cnergenz Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Cnergenz Berhad's ROCE against it's prior returns. If you'd like to look at how Cnergenz Berhad has performed in the past in other metrics, you can view this free graph of Cnergenz Berhad's past earnings, revenue and cash flow.
How Are Returns Trending?
In terms of Cnergenz Berhad's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 44% over the last five years. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.
On a side note, Cnergenz Berhad has done well to pay down its current liabilities to 15% of total assets. That could partly explain why the ROCE has dropped. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.
Our Take On Cnergenz Berhad's ROCE
In summary, we're somewhat concerned by Cnergenz Berhad's diminishing returns on increasing amounts of capital. Long term shareholders who've owned the stock over the last three years have experienced a 33% depreciation in their investment, so it appears the market might not like these trends either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.
Cnergenz Berhad does have some risks, we noticed 5 warning signs (and 3 which can't be ignored) we think you should know about.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
Valuation is complex, but we're here to simplify it.
Discover if Cnergenz Berhad might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
Access Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.