To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Ergo, when we looked at the ROCE trends at Wellcall Holdings Berhad (KLSE:WELLCAL), we liked what we saw.

What Is 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. Analysts use this formula to calculate it for Wellcall Holdings Berhad:

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

0.47 = RM70m ÷ (RM169m - RM19m) (Based on the trailing twelve months to June 2024).

So, Wellcall Holdings Berhad has an ROCE of 47%. In absolute terms that's a great return and it's even better than the Machinery industry average of 7.9%.

See our latest analysis for Wellcall Holdings Berhad

Above you can see how the current ROCE for Wellcall Holdings 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 Wellcall Holdings Berhad .

The Trend Of ROCE

Wellcall Holdings Berhad deserves to be commended in regards to it's returns. Over the past five years, ROCE has remained relatively flat at around 47% and the business has deployed 26% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Wellcall Holdings Berhad can keep this up, we'd be very optimistic about its future.

In Conclusion...

In summary, we're delighted to see that Wellcall Holdings Berhad has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

On a separate note, we've found 1 warning sign for Wellcall Holdings Berhad you'll probably want to know about.

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.