Malakoff Corporation Berhad (KLSE:MALAKOF) Might Have The Makings Of A Multi-Bagger

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Malakoff Corporation Berhad (KLSE:MALAKOF) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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 Malakoff Corporation Berhad, this is the formula:

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

0.073 = RM1.4b ÷ (RM22b - RM3.2b) (Based on the trailing twelve months to December 2022).

Therefore, Malakoff Corporation Berhad has an ROCE of 7.3%. On its own that's a low return on capital but it's in line with the industry's average returns of 7.0%.

See our latest analysis for Malakoff Corporation Berhad

In the above chart we have measured Malakoff Corporation 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.

The Trend Of ROCE

Malakoff Corporation Berhad has not disappointed in regards to ROCE growth. The figures show that over the last five years, returns on capital have grown by 51%. The company is now earning RM0.07 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 29% less capital than it was five years ago. Malakoff Corporation Berhad may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

In Conclusion...

In a nutshell, we're pleased to see that Malakoff Corporation Berhad has been able to generate higher returns from less capital. Since the stock has only returned 19% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

If you'd like to know more about Malakoff Corporation Berhad, we've spotted 4 warning signs, and 1 of them is significant.

While Malakoff Corporation 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.

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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.