Resources Holdings Berhad (KLSE:PTRB) Is Reinvesting To Multiply In Value

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. With that in mind, the ROCE of Resources Holdings Berhad (KLSE:PTRB) looks attractive right now, so lets see what the trend of returns can tell us.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Resources Holdings Berhad is:

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

0.30 = RM62m ÷ (RM318m - RM113m) (Based on the trailing twelve months to January 2024).

So, Resources Holdings Berhad has an ROCE of 30%. That's a fantastic return and not only that, it outpaces the average of 6.9% earned by companies in a similar industry.

Check out our latest analysis for Resources Holdings Berhad

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Resources Holdings Berhad's past further, check out this free graph covering Resources Holdings Berhad's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We'd be pretty happy with returns on capital like Resources Holdings Berhad. The company has consistently earned 30% for the last four years, and the capital employed within the business has risen 296% in that time. Now considering ROCE is an attractive 30%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

In Conclusion...

In short, we'd argue Resources Holdings Berhad has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. However, over the last year, the stock has only delivered a 4.8% return to shareholders who held over that period. So to determine if Resources Holdings Berhad is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Resources Holdings Berhad (of which 1 makes us a bit uncomfortable!) that you should know about.

Resources Holdings Berhad is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.