Are Investors Overlooking Returns On Capital At OpenSys (M) Berhad (KLSE:OPENSYS)?

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over OpenSys (M) Berhad's (KLSE:OPENSYS) trend of ROCE, we really liked what we saw.

Understanding 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 OpenSys (M) Berhad is:

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

0.21 = RM17m ÷ (RM104m - RM20m) (Based on the trailing twelve months to September 2020).

So, OpenSys (M) Berhad has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 9.4% earned by companies in a similar industry.

View our latest analysis for OpenSys (M) Berhad

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

What Does the ROCE Trend For OpenSys (M) Berhad Tell Us?

It's hard not to be impressed by OpenSys (M) Berhad's returns on capital. The company has consistently earned 21% for the last five years, and the capital employed within the business has risen 48% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If OpenSys (M) Berhad can keep this up, we'd be very optimistic about its future.

Our Take On OpenSys (M) Berhad's ROCE

In summary, we're delighted to see that OpenSys (M) Berhad has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And the stock has done incredibly well with a 238% 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 still believe the stock deserves further research.

Like most companies, OpenSys (M) Berhad does come with some risks, and we've found 2 warning signs that you should be aware of.

OpenSys (M) Berhad is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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