The Returns At PETRONAS Gas Berhad (KLSE:PETGAS) Aren't Growing

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Having said that, from a first glance at PETRONAS Gas Berhad (KLSE:PETGAS) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. To calculate this metric for PETRONAS Gas Berhad, this is the formula:

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

0.13 = RM2.3b ÷ (RM19b - RM2.4b) (Based on the trailing twelve months to December 2023).

Therefore, PETRONAS Gas Berhad has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Gas Utilities industry average of 8.6% it's much better.

See our latest analysis for PETRONAS Gas Berhad

Above you can see how the current ROCE for PETRONAS Gas Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering PETRONAS Gas Berhad for free.

How Are Returns Trending?

Over the past five years, PETRONAS Gas Berhad's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at PETRONAS Gas Berhad in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. That being the case, it makes sense that PETRONAS Gas Berhad has been paying out 83% of its earnings to its shareholders. Most shareholders probably know this and own the stock for its dividend.

The Bottom Line

In a nutshell, PETRONAS Gas Berhad has been trudging along with the same returns from the same amount of capital over the last five years. Unsurprisingly, the stock has only gained 34% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

On a separate note, we've found 1 warning sign for PETRONAS Gas Berhad you'll probably want to know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.