Mr D.I.Y. Group (M) Berhad (KLSE:MRDIY) Will Be Hoping To Turn ...

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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 while Mr D.I.Y. Group (M) Berhad (KLSE:MRDIY) has a high ROCE right now, lets see what we can decipher from how returns are changing.

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. Analysts use this formula to calculate it for Mr D.I.Y. Group (M) Berhad:

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

0.28 = RM815m ÷ (RM3.6b - RM641m) (Based on the trailing twelve months to December 2023).

So, Mr D.I.Y. Group (M) Berhad has an ROCE of 28%. In absolute terms that's a great return and it's even better than the Specialty Retail industry average of 14%.

View our latest analysis for Mr D.I.Y. Group (M) Berhad

roce

Above you can see how the current ROCE for Mr D.I.Y. Group (M) 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 Mr D.I.Y. Group (M) Berhad .

When we looked at the ROCE trend at Mr D.I.Y. Group (M) Berhad, we didn't gain much confidence. Historically returns on capital were even higher at 40%, but they have dropped over the last five years. However it looks like Mr D.I.Y. Group (M) Berhad might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Bringing it all together, while we're somewhat encouraged by Mr D.I.Y. Group (M) Berhad's reinvestment in its own business, we're aware that returns are shrinking. And in the last three years, the stock has given away 44% so the market doesn't look too hopeful on these trends strengthening any time soon. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

If you'd like to know about the risks facing Mr D.I.Y. Group (M) Berhad, we've discovered 1 warning sign that you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.