Complete Logistic Services Berhad (KLSE:COMPLET) Could Be Struggling To Allocate Capital

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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Complete Logistic Services Berhad (KLSE:COMPLET) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Complete Logistic Services Berhad is:

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

0.014 = RM2.8m ÷ (RM214m - RM19m) (Based on the trailing twelve months to December 2020).

Thus, Complete Logistic Services Berhad has an ROCE of 1.4%. In absolute terms, that's a low return and it also under-performs the Logistics industry average of 3.7%.

Check out our latest analysis for Complete Logistic Services Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Complete Logistic Services Berhad's ROCE against it's prior returns. If you're interested in investigating Complete Logistic Services Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Complete Logistic Services Berhad Tell Us?

When we looked at the ROCE trend at Complete Logistic Services Berhad, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 1.4% from 14% five years ago. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

The Bottom Line On Complete Logistic Services Berhad's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Complete Logistic Services Berhad have fallen, meanwhile the business is employing more capital than it was five years ago. The market must be rosy on the stock's future because even though the underlying trends aren't too encouraging, the stock has soared 146%. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

One more thing: We've identified 4 warning signs with Complete Logistic Services Berhad (at least 1 which shouldn't be ignored) , and understanding these would certainly be useful.

While Complete Logistic Services 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.

When trading Complete Logistic Services Berhad or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.