Thai Beverage (SGX:Y92) Is Reinvesting At Lower Rates Of Return

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Thai Beverage (SGX:Y92), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What Is It?

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 Thai Beverage, this is the formula:

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

0.089 = ฿36b ÷ (฿472b - ฿69b) (Based on the trailing twelve months to March 2022).

So, Thai Beverage has an ROCE of 8.9%. Ultimately, that's a low return and it under-performs the Beverage industry average of 12%.

Our analysis indicates that Y92 is potentially undervalued!

In the above chart we have measured Thai Beverage's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Thai Beverage.

So How Is Thai Beverage's ROCE Trending?

When we looked at the ROCE trend at Thai Beverage, we didn't gain much confidence. Around five years ago the returns on capital were 17%, but since then they've fallen to 8.9%. However it looks like Thai Beverage might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From Thai Beverage's ROCE

In summary, Thai Beverage is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors appear hesitant that the trends will pick up because the stock has fallen 30% in the last five years. Therefore based on the analysis done in this article, we don't think Thai Beverage has the makings of a multi-bagger.

One final note, you should learn about the 2 warning signs we've spotted with Thai Beverage (including 1 which is 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. 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.