PDZ Holdings Bhd (KLSE:PDZ) 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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. So when we looked at PDZ Holdings Bhd (KLSE:PDZ) and its trend of ROCE, we really liked what we saw.

What Is 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 PDZ Holdings Bhd is:

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

0.078 = RM7.8m ÷ (RM105m - RM5.5m) (Based on the trailing twelve months to December 2024).

Thus, PDZ Holdings Bhd has an ROCE of 7.8%. In absolute terms, that's a low return but it's around the Shipping industry average of 6.6%.

See our latest analysis for PDZ Holdings Bhd

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

How Are Returns Trending?

PDZ Holdings Bhd has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 7.8% which is a sight for sore eyes. Not only that, but the company is utilizing 126% 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.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 5.2%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that PDZ Holdings Bhd has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

What We Can Learn From PDZ Holdings Bhd's ROCE

Long story short, we're delighted to see that PDZ Holdings Bhd's reinvestment activities have paid off and the company is now profitable. And since the stock has fallen 61% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you'd like to know more about PDZ Holdings Bhd, we've spotted 4 warning signs, and 3 of them shouldn't be ignored.

While PDZ Holdings Bhd isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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.