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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we’d like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it’s a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating SWS Capital Berhad (KLSE:SWSCAP), we don’t think it’s current trends fit the mold of a multi-bagger.
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. To calculate this metric for SWS Capital Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.046 = RM6.1m ÷ (RM205m – RM71m) (Based on the trailing twelve months to June 2022).
So, SWS Capital Berhad has an ROCE of 4.6%. Ultimately, that’s a low return and it under-performs the Consumer Durables industry average of 12%.
View our latest analysis for SWS Capital Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for SWS Capital Berhad’s ROCE against it’s prior returns. If you’d like to look at how SWS Capital Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What The Trend Of ROCE Can Tell Us
When we looked at the ROCE trend at SWS Capital Berhad, we didn’t gain much confidence. Over the last five years, returns on capital have decreased to 4.6% from 6.8% five years ago. However it looks like SWS Capital Berhad might be reinvesting for long term growth because while capital employed has increased, the company’s sales haven’t changed much in the last 12 months. It’s worth keeping an eye on the company’s earnings from here on to see if these investments do end up contributing to the bottom line.
In Conclusion…
To conclude, we’ve found that SWS Capital Berhad is reinvesting in the business, but returns have been falling. And investors may be expecting the fundamentals to get a lot worse because the stock has crashed 72% over the last five years. Therefore based on the analysis done in this article, we don’t think SWS Capital Berhad has the makings of a multi-bagger.
One final note, you should learn about the 5 warning signs we’ve spotted with SWS Capital Berhad (including 2 which are potentially serious) .
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
Valuation is complex, but we’re helping make it simple.
Find out whether SWS Capital Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
View the Free Analysis
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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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