What trends should we look for if we want to identify stocks that can multiply in value over the long term? Among other things, we will want to see two things; first, growth to return to on capital employed (ROCE) and on the other hand, an expansion of the quantity capital employed. Ultimately, this demonstrates that this is a company that reinvests its earnings at increasing rates of return. Therefore, when we briefly examined Press Metal Aluminum Holdings Berhad’s (KLSE:PMETAL) ROCE trend, we were pretty happy with what we saw.
Return on capital employed (ROCE): what is it?
For those who don’t know what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital used in its business. The formula for this calculation on Press Metal Aluminum Holdings Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.16 = RM1.4b ÷ (RM13b – RM4.3b) (Based on the last twelve months to September 2021).
Thereby, Press Metal Aluminum Holdings Berhad has a ROCE of 16%. In itself, this is a standard return, but it is much better than the 12% generated by the metals and mining industry.
Check out our latest analysis for Press Metal Aluminum Holdings Berhad
In the chart above, we measured Press Metal Aluminum Holdings Berhad’s past ROCE against its past performance, but the future is arguably more important. If you want, you can check analyst forecasts covering Press Metal Aluminum Holdings Berhad here for free.
The ROCE trend
Although capital returns are good, they haven’t changed much. Over the past five years, ROCE has remained relatively stable at around 16% and the company has deployed 89% more capital into its operations. Since 16% is a moderate ROCE, it’s good to see that a company can continue to reinvest at these decent rates of return. Stable returns in this stage can be unexciting, but if they can be sustained over the long term, they often offer handsome rewards to shareholders.
Our view on Berhad’s Press Metal Aluminum Holdings ROCE
The main thing to remember is that Press Metal Aluminum Holdings Berhad has proven its ability to continually reinvest at respectable rates of return. And the stock has done incredibly well with a 488% return over the past five years, so long-term investors are no doubt pleased with this result. So while the positive underlying trends can be explained by investors, we still think this stock deserves further investigation.
Press Metal Aluminum Holdings Berhad poses some risks, however, and we have spotted 1 warning sign for Press Metal Aluminum Holdings Berhad that might interest you.
Although Press Metal Aluminum Holdings Berhad does not currently generate the highest returns, we have compiled a list of companies that currently generate more than 25% return on equity. look at this free list here.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
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