- Food and Staples Retail
We Like These Underlying Return On Capital Trends At Envictus International Holdings (SGX:BQD)
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Envictus International Holdings (SGX:BQD) and its trend of ROCE, we really liked what we saw.
What Is Return On Capital Employed (ROCE)?
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. To calculate this metric for Envictus International Holdings, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0086 = RM3.2m ÷ (RM587m - RM212m) (Based on the trailing twelve months to September 2022).
Therefore, Envictus International Holdings has an ROCE of 0.9%. In absolute terms, that's a low return and it also under-performs the Consumer Retailing industry average of 8.9%.
Check out our latest analysis for Envictus International Holdings
Historical performance is a great place to start when researching a stock so above you can see the gauge for Envictus International Holdings' ROCE against it's prior returns. If you'd like to look at how Envictus International Holdings has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
The Trend Of ROCE
Envictus International Holdings has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 0.9% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by Envictus International Holdings has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.
For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Effectively this means that suppliers or short-term creditors are now funding 36% of the business, which is more than it was five years ago. It's worth keeping an eye on this because as the percentage of current liabilities to total assets increases, some aspects of risk also increase.
The Key Takeaway
In summary, we're delighted to see that Envictus International Holdings has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Given the stock has declined 50% 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.
One final note, you should learn about the 4 warning signs we've spotted with Envictus International Holdings (including 2 which are potentially serious) .
While Envictus International Holdings 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 Envictus International Holdings 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.
Envictus International Holdings
Envictus International Holdings Limited, an investment holding company, provides various food and beverage products primarily in Malaysia, China, rest of ASEAN countries, and Africa.
Slightly overvalued with worrying balance sheet.