If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating MPHB Capital Berhad (KLSE:MPHBCAP), we don't think it's current trends fit the mold of a multi-bagger.
What Is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on MPHB Capital Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.033 = RM57m ÷ (RM1.7b - RM24m) (Based on the trailing twelve months to June 2023).
Thus, MPHB Capital Berhad has an ROCE of 3.3%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 6.1%.
View our latest analysis for MPHB Capital Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for MPHB Capital Berhad's ROCE against it's prior returns. If you'd like to look at how MPHB Capital Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
How Are Returns Trending?
Over the past five years, MPHB Capital Berhad's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if MPHB Capital Berhad doesn't end up being a multi-bagger in a few years time.
One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 1.4% of total assets, is good to see from a business owner's perspective. 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.
The Bottom Line On MPHB Capital Berhad's ROCE
In a nutshell, MPHB Capital Berhad has been trudging along with the same returns from the same amount of capital over the last five years. Although the market must be expecting these trends to improve because the stock has gained 43% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.