The Trends At Boustead Singapore (SGX:F9D) That You Should Know About

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Boustead Singapore (SGX:F9D) and its ROCE trend, we weren't exactly thrilled.

What is 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 Boustead Singapore is:

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

0.12 = S$78m ÷ (S$1.0b - S$358m) (Based on the trailing twelve months to September 2020).

Therefore, Boustead Singapore has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Construction industry average of 1.9% it's much better.

Check out our latest analysis for Boustead Singapore

Above you can see how the current ROCE for Boustead Singapore compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Boustead Singapore.

How Are Returns Trending?

Over the past five years, Boustead Singapore's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Boustead Singapore to be a multi-bagger going forward. This probably explains why Boustead Singapore is paying out 38% of its income to shareholders in the form of dividends. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

In Conclusion...

In summary, Boustead Singapore isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And with the stock having returned a mere 12% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you'd like to know more about Boustead Singapore, we've spotted 2 warning signs, and 1 of them is potentially serious.

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

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