Yahoo Finance ABR Holdings (SGX:533) May Have Issues Allocating Its Capital
What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at ABR Holdings (SGX:533), it didn't seem to tick all of these boxes.
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. Analysts use this formula to calculate it for ABR Holdings:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0037 = S$505k ÷ (S$166m - S$30m) (Based on the trailing twelve months to December 2022).
So, ABR Holdings has an ROCE of 0.4%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 2.1%.
See our latest analysis for ABR Holdings
Historical performance is a great place to start when researching a stock so above you can see the gauge for ABR Holdings' ROCE against it's prior returns. If you'd like to look at how ABR Holdings has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What Can We Tell From ABR Holdings' ROCE Trend?
In terms of ABR Holdings' historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 5.6% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.
Our Take On ABR Holdings' ROCE
In summary, despite lower returns in the short term, we're encouraged to see that ABR Holdings is reinvesting for growth and has higher sales as a result. These growth trends haven't led to growth returns though, since the stock has fallen 39% over the last five years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.
ABR Holdings does have some risks, we noticed 3 warning signs (and 2 which can't be ignored) we think you should know about.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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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.
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