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

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Boustead Singapore (SGX:F9D), we don't think it's current trends fit the mold of a multi-bagger.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Boustead Singapore, this is the formula:

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).

So, Boustead Singapore has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 0.2% generated by the Construction industry.

View our latest analysis for Boustead Singapore

In the above chart we have measured Boustead Singapore's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Boustead Singapore here for free.

The Trend Of ROCE

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. So unless we see a substantial change at Boustead Singapore in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. With fewer investment opportunities, it makes sense that Boustead Singapore has been paying out a decent 38% of its earnings to shareholders. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

The Bottom Line On Boustead Singapore's ROCE

In a nutshell, Boustead Singapore has been trudging along with the same returns from the same amount of capital over the last five years. And investors may be recognizing these trends since the stock has only returned a total of 29% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

Boustead Singapore does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is a bit concerning...

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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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