Mewah International (SGX:MV4) Might Have The Makings Of A Multi-Bagger

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. So on that note, Mewah International (SGX:MV4) looks quite promising in regards to its trends of return on capital.

Understanding 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 Mewah International, this is the formula:

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

0.17 = US$135m ÷ (US$1.8b - US$976m) (Based on the trailing twelve months to June 2022).

So, Mewah International has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 11% it's much better.

Check out our latest analysis for Mewah International

Historical performance is a great place to start when researching a stock so above you can see the gauge for Mewah International's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Mewah International, check out these free graphs here.

What Does the ROCE Trend For Mewah International Tell Us?

We like the trends that we're seeing from Mewah International. Over the last five years, returns on capital employed have risen substantially to 17%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 45%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

On a side note, Mewah International's current liabilities are still rather high at 55% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From Mewah International's ROCE

To sum it up, Mewah International has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 25% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

If you want to know some of the risks facing Mewah International we've found 4 warning signs (1 doesn't sit too well with us!) that you should be aware of before investing here.

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. 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.