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. Ultimately, this demonstrates that it’s a business that is reinvesting profits at increasing rates of return. So when we looked at MBM Resources Berhad (KLSE:MBMR) and its trend of ROCE, we really liked what we saw.

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)

0.0081 = RM20m ÷ (RM2.7b – RM164m) (Based on the trailing twelve months to March 2024).

Therefore, MBM Resources Berhad has an ROCE of 0.8%. In absolute terms, that’s a low return and it also under-performs the Retail Distributors industry average of 5.6%.

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’re interested, you can view the analysts predictions in our free analyst report for MBM Resources Berhad .

The Trend Of ROCE

MBM Resources Berhad has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it’s earning 0.8% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, MBM Resources Berhad is utilizing 28% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

What We Can Learn From MBM Resources Berhad’s ROCE

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. Since the stock has returned a staggering 150% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Story continues

On a final note, we found 2 warning signs for MBM Resources Berhad (1 is potentially serious) you should be aware of.

While MBM Resources Berhad isn’t earning the highest return, check out this free list of companies that are 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.

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