Does HG Metal Manufacturing (SGX:BTG) Have The Makings Of A Multi-Bagger?

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. With that in mind, we've noticed some promising trends at HG Metal Manufacturing (SGX:BTG) so let's look a bit deeper.

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. To calculate this metric for HG Metal Manufacturing, this is the formula:

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

0.018 = S$2.4m ÷ (S$147m - S$17m) (Based on the trailing twelve months to December 2020).

So, HG Metal Manufacturing has an ROCE of 1.8%. On its own that's a low return on capital but it's in line with the industry's average returns of 1.8%.

See our latest analysis for HG Metal Manufacturing

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

How Are Returns Trending?

HG Metal Manufacturing has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 1.8%, which is always encouraging. While returns have increased, the amount of capital employed by HG Metal Manufacturing has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

Our Take On HG Metal Manufacturing's ROCE

To sum it up, HG Metal Manufacturing is collecting higher returns from the same amount of capital, and that's impressive. Astute investors may have an opportunity here because the stock has declined 33% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

HG Metal Manufacturing does have some risks though, and we've spotted 2 warning signs for HG Metal Manufacturing that you might be interested in.

While HG Metal Manufacturing 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.

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This article by Simply Wall St is general in nature. 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.
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