If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Although, when we looked at Hubline Berhad (KLSE:HUBLINE), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Hubline Berhad is:

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

0.019 = RM4.2m ÷ (RM354m - RM129m) (Based on the trailing twelve months to December 2022).

So, Hubline Berhad has an ROCE of 1.9%. In absolute terms, that's a low return and it also under-performs the Shipping industry average of 10%.

View our latest analysis for Hubline Berhad

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

So How Is Hubline Berhad's ROCE Trending?

Over the past five years, Hubline Berhad's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Hubline Berhad doesn't end up being a multi-bagger in a few years time.

The Key Takeaway

In summary, Hubline Berhad isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has declined 58% over the last five years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Hubline Berhad does have some risks though, and we've spotted 2 warning signs for Hubline Berhad that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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