MBM Resources Berhad (KLSE:MBMR) Might Have The Makings Of A Multi-Bagger

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, MBM Resources Berhad (KLSE:MBMR) looks quite promising in regards to its trends of return on capital.

Understanding 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. To calculate this metric for MBM Resources Berhad, this is the formula:

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

0.0054 = RM13m ÷ (RM2.6b - RM200m) (Based on the trailing twelve months to September 2023).

Thus, MBM Resources Berhad has an ROCE of 0.5%. In absolute terms, that's a low return and it also under-performs the Retail Distributors industry average of 5.7%.

See our latest analysis for MBM Resources Berhad

Above you can see how the current ROCE for MBM Resources Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering MBM Resources Berhad for free.

So How Is MBM Resources Berhad's ROCE Trending?

We're delighted to see that MBM Resources Berhad is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 0.5% which is a sight for sore eyes. In addition to that, MBM Resources Berhad is employing 28% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

The Bottom Line

In summary, it's great to see that MBM Resources Berhad has managed to break into profitability and is continuing to reinvest in its business. And a remarkable 171% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if MBM Resources Berhad can keep these trends up, it could have a bright future ahead.

If you want to know some of the risks facing MBM Resources Berhad we've found 2 warning signs (1 is significant!) that you should be aware of before investing here.

While MBM Resources Berhad may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.