There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a company will show two trends; first a growth come back on capital employed (ROCE) and second, an increasing number of working capital. Finally, this shows that it is a company that reinvests profits with increasing returns. Although, when we looked at A part of Magni-Tech Industries Berhad (KLSE:MAGNI), it didn’t seem to tick all these boxes.
What is Return On Capital Employed (ROCE)?
Just to clarify if you are not sure, 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 find out the exact share price for the past year, hover your mouse over the graph of the history of Magni-Tech Industries Berhad.
Return on Capital Employed = Earnings before interest and taxes (EBIT) ÷ (total assets – current liabilities)
0.14 = RM114m ÷ (RM875m – RM68m) (Based on the trailing twelve months to January 2023).
So, Magni-Tech Industries Berhad’s share prices for 2019 changed to +14.15%. In absolute terms, that is a fairly normal rate of return, and it is somewhat close to the Luxury industry average of 13%.
Shows the last share price of Magni-Tech Industries Berhad in US dollars
Above you can see how the current ROCE for Magni-Tech Industries Berhad compares to its past return on capital, but there’s only so much you can tell from the past. If you want to, you can check the forecasts of the analysts who cover Magni-Tech Industries Berhad here for free
How are returns trending?
As for the historical ROCE movements of Magni-Tech Industries Berhad, the trend is not fantastic. About five years ago the return on capital was 26%, but since then it has dropped to 14%. Given that working capital and revenue have both increased, however, it appears that the company is currently pursuing growth, as a result of short-term returns. If these investments prove successful, this could bode well for long-term performance.
The history of Magni-Tech Industries Berhad on the map is on our website
While returns have fallen in recent times for Magni-Tech Industries Berhad, we are encouraged to see that sales are growing and that the company is reinvesting in its operations. In light of this, the stock has only gained 31% over the last five years. So this stock could still be an attractive investment opportunity, if other fundamentals prove to be sound.
One more thing to note, we have identified 1 warning sign with Magni-Tech Industries Berhad and understanding this should be part of your investment process.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high return on equity.
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This Simply Wall St article 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 is not a recommendation to buy or sell stock, and does not take into account your goals, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Please 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 of the listed stocks.
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