Stock Analysis

Be Wary Of V.S. Industry Berhad (KLSE:VS) And Its Returns On Capital

KLSE:VS
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What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at V.S. Industry Berhad (KLSE:VS) and its ROCE trend, we weren't exactly thrilled.

What Is 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. To calculate this metric for V.S. Industry Berhad, this is the formula:

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

0.098 = RM264m ÷ (RM3.9b - RM1.2b) (Based on the trailing twelve months to October 2024).

So, V.S. Industry Berhad has an ROCE of 9.8%. In absolute terms, that's a low return but it's around the Electronic industry average of 11%.

Check out our latest analysis for V.S. Industry Berhad

roce
KLSE:VS Return on Capital Employed January 28th 2025

In the above chart we have measured V.S. Industry Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for V.S. Industry Berhad .

How Are Returns Trending?

In terms of V.S. Industry Berhad's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 9.8% from 12% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line

To conclude, we've found that V.S. Industry Berhad is reinvesting in the business, but returns have been falling. Since the stock has gained an impressive 60% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

V.S. Industry Berhad does have some risks though, and we've spotted 1 warning sign for V.S. Industry Berhad that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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Have 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.

About KLSE:VS

V.S. Industry Berhad

An investment holding company, engages in the manufacturing, assembling and selling electronic and electrical products, and plastic molded components and parts.

Very undervalued with excellent balance sheet and pays a dividend.

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