If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Iconic Worldwide Berhad (KLSE:ICONIC) 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. Analysts use this formula to calculate it for Iconic Worldwide Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0044 = RM1.4m ÷ (RM347m - RM39m) (Based on the trailing twelve months to December 2022).
Thus, Iconic Worldwide Berhad has an ROCE of 0.4%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 5.1%.
See our latest analysis for Iconic Worldwide Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Iconic Worldwide Berhad's ROCE against it's prior returns. If you're interested in investigating Iconic Worldwide Berhad's past further, check out this free graph of past earnings, revenue and cash flow.
What Can We Tell From Iconic Worldwide Berhad's ROCE Trend?
The fact that Iconic Worldwide Berhad is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 0.4% on its capital. Not only that, but the company is utilizing 239% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
The Bottom Line
Long story short, we're delighted to see that Iconic Worldwide Berhad's reinvestment activities have paid off and the company is now profitable. And since the stock has fallen 13% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
Like most companies, Iconic Worldwide Berhad does come with some risks, and we've found 2 warning signs that you should be aware of.