We Like Hibiscus Petroleum Berhad's (KLSE:HIBISCS) Returns And Here's How They're Trending

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. And in light of that, the trends we're seeing at Hibiscus Petroleum Berhad's (KLSE:HIBISCS) look very promising so lets take a look.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Hibiscus Petroleum Berhad is:

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

0.25 = RM1.2b ÷ (RM6.4b - RM1.5b) (Based on the trailing twelve months to December 2023).

So, Hibiscus Petroleum Berhad has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Oil and Gas industry average of 13%.

View our latest analysis for Hibiscus Petroleum Berhad

In the above chart we have measured Hibiscus Petroleum Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Hibiscus Petroleum Berhad .

So How Is Hibiscus Petroleum Berhad's ROCE Trending?

Investors would be pleased with what's happening at Hibiscus Petroleum Berhad. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 25%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 160%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

All in all, it's terrific to see that Hibiscus Petroleum Berhad is reaping the rewards from prior investments and is growing its capital base. Since the stock has only returned 16% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

Hibiscus Petroleum Berhad does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.