To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we’ll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it’s a business that is reinvesting profits at increasing rates of return. Ergo, when we looked at the ROCE trends at Vestland Berhad (KLSE:VLB), we liked what we saw.
Understanding 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. The formula for this calculation on Vestland Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.26 = RM45m ÷ (RM544m – RM371m) (Based on the trailing twelve months to March 2024).
Thus, Vestland Berhad has an ROCE of 26%. In absolute terms that’s a great return and it’s even better than the Construction industry average of 7.7%.
View our latest analysis for Vestland Berhad
In the above chart we have measured Vestland Berhad’s prior ROCE against its prior performance, but the future is arguably more important. If you’d like, you can check out the forecasts from the analysts covering Vestland Berhad for free.
What Does the ROCE Trend For Vestland Berhad Tell Us?
In terms of Vestland Berhad’s history of ROCE, it’s quite impressive. The company has employed 338% more capital in the last four years, and the returns on that capital have remained stable at 26%. With returns that high, it’s great that the business can continually reinvest its money at such appealing rates of return. If Vestland Berhad can keep this up, we’d be very optimistic about its future.
Another thing to note, Vestland Berhad has a high ratio of current liabilities to total assets of 68%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it’s not necessarily a bad thing, it can be beneficial if this ratio is lower.
In Conclusion…
In summary, we’re delighted to see that Vestland Berhad has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. Therefore it’s no surprise that shareholders have earned a respectable 32% return if they held over the last year. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
Vestland Berhad does have some risks though, and we’ve spotted 2 warning signs for Vestland Berhad that you might be interested in.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
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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.
