Here's What To Make Of Malaysia Airports Holdings Berhad's (KLSE:AIRPORT) Decelerating Rates Of Return

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Malaysia Airports Holdings Berhad (KLSE:AIRPORT), it didn't seem to tick all of these boxes.

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. The formula for this calculation on Malaysia Airports Holdings Berhad is:

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

0.042 = RM718m ÷ (RM21b - RM3.6b) (Based on the trailing twelve months to June 2022).

Thus, Malaysia Airports Holdings Berhad has an ROCE of 4.2%. Ultimately, that's a low return and it under-performs the Infrastructure industry average of 21%.

Check out the opportunities and risks within the MY Infrastructure industry.

In the above chart we have measured Malaysia Airports Holdings 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 report on analyst forecasts for the company.

So How Is Malaysia Airports Holdings Berhad's ROCE Trending?

Over the past five years, Malaysia Airports Holdings Berhad's ROCE and capital employed have both remained mostly flat. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So unless we see a substantial change at Malaysia Airports Holdings Berhad in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. With fewer investment opportunities, it makes sense that Malaysia Airports Holdings Berhad has been paying out a decent 39% of its earnings to shareholders. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

Our Take On Malaysia Airports Holdings Berhad's ROCE

In a nutshell, Malaysia Airports Holdings Berhad has been trudging along with the same returns from the same amount of capital over the last five years. And in the last five years, the stock has given away 19% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Malaysia Airports Holdings Berhad has the makings of a multi-bagger.

If you're still interested in Malaysia Airports Holdings Berhad it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

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.

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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.