There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Asia Enterprises Holding (SGX:A55) looks quite promising in regards to its trends of return on capital.
Understanding 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 Asia Enterprises Holding is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.052 = S$5.5m ÷ (S$110m - S$3.1m) (Based on the trailing twelve months to June 2022).
So, Asia Enterprises Holding has an ROCE of 5.2%. Ultimately, that's a low return and it under-performs the Trade Distributors industry average of 7.7%.
Our analysis indicates that A55 is potentially overvalued!
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 Asia Enterprises Holding, check out these free graphs here.
What Does the ROCE Trend For Asia Enterprises Holding Tell Us?
Asia Enterprises Holding's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 1,948% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
The Bottom Line
To sum it up, Asia Enterprises Holding is collecting higher returns from the same amount of capital, and that's impressive. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 8.1% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.
If you want to know some of the risks facing Asia Enterprises Holding we've found 3 warning signs (1 is significant!) that you should be aware of before investing here.
While Asia Enterprises Holding may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
Valuation is complex, but we're helping make it simple.
Find out whether Asia Enterprises Holding is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free Analysis
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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.
Asia Enterprises Holding
Asia Enterprises Holding Limited, an investment holding company, distributes steel products to industrial end-users in Singapore, Indonesia, Malaysia, and other regions in the Asia Pacific.
Flawless balance sheet with solid track record.