Ban Leong Technologies (SGX:B26) Has Some Way To Go To Become A Multi-Bagger

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. So, when we ran our eye over Ban Leong Technologies' (SGX:B26) trend of ROCE, we liked what we saw.

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. Analysts use this formula to calculate it for Ban Leong Technologies:

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

0.19 = S$7.9m ÷ (S$73m - S$32m) (Based on the trailing twelve months to March 2021).

Thus, Ban Leong Technologies has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 9.4% it's much better.

See our latest analysis for Ban Leong Technologies

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

The Trend Of ROCE

While the current returns on capital are decent, they haven't changed much. The company has employed 66% more capital in the last five years, and the returns on that capital have remained stable at 19%. 19% is a pretty standard return, and it provides some comfort knowing that Ban Leong Technologies has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

On a side note, Ban Leong Technologies has done well to reduce current liabilities to 44% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously. Although because current liabilities are still 44%, some of that risk is still prevalent.

In Conclusion...

The main thing to remember is that Ban Leong Technologies has proven its ability to continually reinvest at respectable rates of return. And long term investors would be thrilled with the 127% return they've received over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

If you'd like to know about the risks facing Ban Leong Technologies, we've discovered 2 warning signs that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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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