Investors Will Want Puncak Niaga Holdings Berhad's (KLSE:PUNCAK) Growth In ROCE To Persist

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Puncak Niaga Holdings Berhad (KLSE:PUNCAK) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Puncak Niaga Holdings Berhad is:

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

0.018 = RM45m ÷ (RM3.0b - RM425m) (Based on the trailing twelve months to December 2022).

So, Puncak Niaga Holdings Berhad has an ROCE of 1.8%. Ultimately, that's a low return and it under-performs the Water Utilities industry average of 6.9%.

See our latest analysis for Puncak Niaga Holdings Berhad

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Puncak Niaga Holdings Berhad, check out these free graphs here.

SWOT Analysis for Puncak Niaga Holdings Berhad

What The Trend Of ROCE Can Tell Us

Puncak Niaga Holdings Berhad has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 1.8% on its capital. And unsurprisingly, like most companies trying to break into the black, Puncak Niaga Holdings Berhad is utilizing 39% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

What We Can Learn From Puncak Niaga Holdings Berhad's ROCE

In summary, it's great to see that Puncak Niaga Holdings Berhad has managed to break into profitability and is continuing to reinvest in its business. And since the stock has fallen 50% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

Like most companies, Puncak Niaga Holdings Berhad does come with some risks, and we've found 2 warning signs that you should be aware of.

While Puncak Niaga Holdings 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.