Evergreen Fibreboard Berhad (KLSE:EVERGRN) Might Have The Makings Of A Multi-Bagger
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Evergreen Fibreboard Berhad (KLSE:EVERGRN) 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 Evergreen Fibreboard Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0083 = RM9.4m ÷ (RM1.4b - RM289m) (Based on the trailing twelve months to March 2024).
So, Evergreen Fibreboard Berhad has an ROCE of 0.8%. In absolute terms, that's a low return and it also under-performs the Forestry industry average of 3.1%.
View our latest analysis for Evergreen Fibreboard Berhad
In the above chart we have measured Evergreen Fibreboard Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Evergreen Fibreboard Berhad for free.
What The Trend Of ROCE Can Tell Us
Shareholders will be relieved that Evergreen Fibreboard Berhad has broken into profitability. The company now earns 0.8% on its capital, because five years ago it was incurring losses. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.
The Bottom Line On Evergreen Fibreboard Berhad's ROCE
To bring it all together, Evergreen Fibreboard Berhad has done well to increase the returns it's generating from its capital employed. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 37% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.
If you'd like to know about the risks facing Evergreen Fibreboard Berhad, we've discovered 1 warning sign that you should be aware of.
While Evergreen Fibreboard Berhad may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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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