The Return Trends At Puncak Niaga Holdings Berhad (KLSE:PUNCAK) Look Promising

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. So when we looked at Puncak Niaga Holdings Berhad (KLSE:PUNCAK) and its trend of ROCE, we really liked what we saw.

Understanding 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. Analysts use this formula to calculate it for Puncak Niaga Holdings Berhad:

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

0.033 = RM87m ÷ (RM3.0b - RM427m) (Based on the trailing twelve months to June 2022).

So, Puncak Niaga Holdings Berhad has an ROCE of 3.3%. In absolute terms, that's a low return and it also under-performs the Water Utilities industry average of 7.1%.

Check out 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're interested in investigating Puncak Niaga Holdings Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

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 3.3% on its capital. And unsurprisingly, like most companies trying to break into the black, Puncak Niaga Holdings Berhad is utilizing 86% 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 Key Takeaway

Long story short, we're delighted to see that Puncak Niaga Holdings Berhad's reinvestment activities have paid off and the company is now profitable. Given the stock has declined 70% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a separate note, we've found 1 warning sign for Puncak Niaga Holdings 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.