Capital Investment Trends At Frontken Corporation Berhad (KLSE:FRONTKN) Look Strong
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. That’s why when we briefly looked at Frontken Corporation Berhad’s (KLSE:FRONTKN) ROCE trend, we were very happy with what we saw.
Return On Capital Employed (ROCE): What Is It?
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 Frontken Corporation Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.23 = RM168m ÷ (RM886m – RM166m) (Based on the trailing twelve months to December 2023).
So, Frontken Corporation Berhad has an ROCE of 23%. That’s a fantastic return and not only that, it outpaces the average of 5.9% earned by companies in a similar industry.
Check out our latest analysis for Frontken Corporation Berhad
Above you can see how the current ROCE for Frontken Corporation 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 Frontken Corporation Berhad .
The Trend Of ROCE
In terms of Frontken Corporation Berhad’s history of ROCE, it’s quite impressive. Over the past five years, ROCE has remained relatively flat at around 23% and the business has deployed 101% more capital into its operations. Now considering ROCE is an attractive 23%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If these trends can continue, it wouldn’t surprise us if the company became a multi-bagger.
In Conclusion…
Frontken Corporation Berhad has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we’re thrilled about. On top of that, the stock has rewarded shareholders with a remarkable 438% return to those who’ve held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
Before jumping to any conclusions though, we need to know what value we’re getting for the current share price. That’s where you can check out our FREE intrinsic value estimation for FRONTKN that compares the share price and estimated value.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
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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.
