OpenSys (M) Berhad (KLSE:OPENSYS) Has Some Way To Go To Become A Multi-Bagger

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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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 liked what we saw.

Understanding 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. The formula for this calculation on OpenSys (M) Berhad is:

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

0.17 = RM14m ÷ (RM100m - RM15m) (Based on the trailing twelve months to December 2020).

Therefore, OpenSys (M) Berhad has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 9.5% generated by the Tech industry.

See our latest analysis for OpenSys (M) Berhad

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. 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?

While the returns on capital are good, they haven't moved much. The company has employed 50% more capital in the last five years, and the returns on that capital have remained stable at 17%. 17% is a pretty standard return, and it provides some comfort knowing that OpenSys (M) Berhad has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

Our Take On OpenSys (M) Berhad's ROCE

The main thing to remember is that OpenSys (M) Berhad has proven its ability to continually reinvest at respectable rates of return. And the stock has done incredibly well with a 218% return over the last five years, so long term investors are no doubt ecstatic with that result. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

If you'd like to know about the risks facing OpenSys (M) Berhad, we've discovered 2 warning signs that you should be aware of.

While OpenSys (M) Berhad may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. 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.
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