Puncak Niaga Holdings Berhad (KLSE:PUNCAK) Might Have The Makings Of A Multi-Bagger

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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)?

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. 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)

0.024 = RM64m ÷ (RM3.1b - RM446m) (Based on the trailing twelve months to December 2021).

Therefore, Puncak Niaga Holdings Berhad has an ROCE of 2.4%. In absolute terms, that's a low return and it also under-performs the Water Utilities industry average of 7.4%.

View our latest analysis for Puncak Niaga Holdings Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Puncak Niaga Holdings Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Puncak Niaga Holdings Berhad, check out these free graphs here.

What Does the ROCE Trend For Puncak Niaga Holdings Berhad 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 2.4% on its capital. And unsurprisingly, like most companies trying to break into the black, Puncak Niaga Holdings Berhad is utilizing 47% more capital than it was five years ago. 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.

The Bottom Line

To the delight of most shareholders, Puncak Niaga Holdings Berhad has now broken into profitability. And since the stock has fallen 67% 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 about the risks facing Puncak Niaga Holdings Berhad, we've discovered 1 warning sign that you should be aware of.

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.