Vortex Consolidated Berhad (KLSE:VC) Might Have The Makings Of A Multi-Bagger

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Vortex Consolidated Berhad's (KLSE:VC) returns on capital, so let's have a look.

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. To calculate this metric for Vortex Consolidated Berhad, this is the formula:

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

0.015 = RM3.6m ÷ (RM334m - RM92m) (Based on the trailing twelve months to June 2021).

So, Vortex Consolidated Berhad has an ROCE of 1.5%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 13%.

Check out our latest analysis for Vortex Consolidated 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're interested in investigating Vortex Consolidated Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

The fact that Vortex Consolidated Berhad is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 1.5% on its capital. Not only that, but the company is utilizing 272% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

Our Take On Vortex Consolidated Berhad's ROCE

Long story short, we're delighted to see that Vortex Consolidated Berhad's reinvestment activities have paid off and the company is now profitable. However the stock is down a substantial 81% in the last five years so there could be other areas of the business hurting its prospects. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.

If you want to know some of the risks facing Vortex Consolidated Berhad we've found 5 warning signs (3 make us uncomfortable!) that you should be aware of before investing here.

While Vortex Consolidated 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.
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