Stock Analysis

King Wan (SGX:554) Is Doing The Right Things To Multiply Its Share Price

SGX:554
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To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. With that in mind, we've noticed some promising trends at King Wan (SGX:554) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for King Wan:

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

0.015 = S$1.2m ÷ (S$126m - S$50m) (Based on the trailing twelve months to September 2021).

Therefore, King Wan has an ROCE of 1.5%. Even though it's in line with the industry average of 2.3%, it's still a low return by itself.

View our latest analysis for King Wan

roce
SGX:554 Return on Capital Employed March 22nd 2022

Historical performance is a great place to start when researching a stock so above you can see the gauge for King Wan's ROCE against it's prior returns. If you're interested in investigating King Wan's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For King Wan Tell Us?

King Wan has broken into the black (profitability) and we're sure it's a sight for sore eyes. While the business was unprofitable in the past, it's now turned things around and is earning 1.5% on its capital. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

What We Can Learn From King Wan's ROCE

In summary, we're delighted to see that King Wan has been able to increase efficiencies and earn higher rates of return on the same amount of capital. 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. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a final note, we found 3 warning signs for King Wan (1 doesn't sit too well with us) you should be aware of.

While King Wan isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Valuation is complex, but we're here to simplify it.

Discover if King Wan might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

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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.

About SGX:554

King Wan

An investment holding company, provides mechanical and electrical engineering services for the building and construction industry in Singapore.

Good value with proven track record.