Here’s What To Make Of Mieco Chipboard Berhad’s (KLSE:MIECO) Decelerating Rates Of Return

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we’ll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it’s a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Mieco Chipboard Berhad (KLSE:MIECO), we don’t think it’s current trends fit the mold of a multi-bagger.

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. To calculate this metric for Mieco Chipboard Berhad, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)

0.02 = RM8.5m ÷ (RM654m – RM227m) (Based on the trailing twelve months to December 2024).

So, Mieco Chipboard Berhad has an ROCE of 2.0%. Even though it’s in line with the industry average of 2.4%, it’s still a low return by itself.

View our latest analysis for Mieco Chipboard Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Mieco Chipboard Berhad’s ROCE against it’s prior returns. If you’re interested in investigating Mieco Chipboard Berhad’s past further, check out this free graph covering Mieco Chipboard Berhad’s past earnings, revenue and cash flow.

Over the past five years, Mieco Chipboard Berhad’s ROCE and capital employed have both remained mostly flat. 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 Mieco Chipboard Berhad doesn’t end up being a multi-bagger in a few years time.

We can conclude that in regards to Mieco Chipboard Berhad’s returns on capital employed and the trends, there isn’t much change to report on. Investors must think there’s better things to come because the stock has knocked it out of the park, delivering a 395% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn’t get our hopes up too high.

One final note, you should learn about the 2 warning signs we’ve spotted with Mieco Chipboard Berhad (including 1 which doesn’t sit too well with us) .