Yahoo Finance Investors Will Want Negri Sembilan Oil Palms Berhad's (KLSE:NSOP) Growth In ROCE To Persist
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Negri Sembilan Oil Palms Berhad (KLSE:NSOP) and its trend of ROCE, we really liked what we saw.
What Is Return On Capital Employed (ROCE)?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Negri Sembilan Oil Palms Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.014 = RM11m ÷ (RM818m - RM12m) (Based on the trailing twelve months to December 2023).
Thus, Negri Sembilan Oil Palms Berhad has an ROCE of 1.4%. Ultimately, that's a low return and it under-performs the Food industry average of 6.9%.
See our latest analysis for Negri Sembilan Oil Palms Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Negri Sembilan Oil Palms Berhad's ROCE against it's prior returns. If you'd like to look at how Negri Sembilan Oil Palms Berhad has performed in the past in other metrics, you can view this free graph of Negri Sembilan Oil Palms Berhad's past earnings, revenue and cash flow.
What Does the ROCE Trend For Negri Sembilan Oil Palms Berhad Tell Us?
We're delighted to see that Negri Sembilan Oil Palms Berhad is reaping rewards from its investments and has now broken into profitability. The company now earns 1.4% on its capital, because five years ago it was incurring losses. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.
In Conclusion...
To sum it up, Negri Sembilan Oil Palms Berhad is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has only returned 36% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.
One more thing, we've spotted 2 warning signs facing Negri Sembilan Oil Palms Berhad that you might find interesting.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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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.
