Return Trends At Freight Management Holdings Bhd (KLSE:FREIGHT) Aren't Appealing

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. However, after briefly looking over the numbers, we don't think Freight Management Holdings Bhd (KLSE:FREIGHT) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. To calculate this metric for Freight Management Holdings Bhd, this is the formula:

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

0.076 = RM30m ÷ (RM515m - RM117m) (Based on the trailing twelve months to March 2021).

So, Freight Management Holdings Bhd has an ROCE of 7.6%. On its own that's a low return, but compared to the average of 4.8% generated by the Shipping industry, it's much better.

See our latest analysis for Freight Management Holdings Bhd

In the above chart we have measured Freight Management Holdings Bhd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Freight Management Holdings Bhd.

What Can We Tell From Freight Management Holdings Bhd's ROCE Trend?

In terms of Freight Management Holdings Bhd's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 7.6% for the last five years, and the capital employed within the business has risen 21% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Our Take On Freight Management Holdings Bhd's ROCE

In conclusion, Freight Management Holdings Bhd has been investing more capital into the business, but returns on that capital haven't increased. Yet to long term shareholders the stock has gifted them an incredible 182% return in the last five years, so the market appears to be rosy about its future. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

On a final note, we've found 2 warning signs for Freight Management Holdings Bhd that we think you should be aware of.

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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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