Evergreen Fibreboard Berhad (KLSE:EVERGRN) Has Some Way To Go To Become A Multi-Bagger
What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. In light of that, when we looked at Evergreen Fibreboard Berhad (KLSE:EVERGRN) and its ROCE trend, we weren't exactly thrilled.
Return On Capital Employed (ROCE): What Is It?
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. Analysts use this formula to calculate it for Evergreen Fibreboard Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.064 = RM77m ÷ (RM1.4b - RM253m) (Based on the trailing twelve months to September 2022).
So, Evergreen Fibreboard Berhad has an ROCE of 6.4%. On its own that's a low return on capital but it's in line with the industry's average returns of 6.4%.
Check out 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 here for free.
How Are Returns Trending?
Things have been pretty stable at Evergreen Fibreboard Berhad, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if Evergreen Fibreboard Berhad doesn't end up being a multi-bagger in a few years time. With fewer investment opportunities, it makes sense that Evergreen Fibreboard Berhad has been paying out a decent 42% of its earnings to shareholders. Unless businesses have highly compelling growth opportunities, they'll typically return some money to shareholders.
Our Take On Evergreen Fibreboard Berhad's ROCE
In summary, Evergreen Fibreboard Berhad isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has declined 22% over the last five years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.
If you'd like to know about the risks facing Evergreen Fibreboard Berhad, we've discovered 2 warning signs that you should be aware of.
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.
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