If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. However, after investigating Mi Technovation Berhad (KLSE:MI), we don't think it's current trends fit the mold of a multi-bagger.

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. To calculate this metric for Mi Technovation Berhad, this is the formula:

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

0.084 = RM98m ÷ (RM1.3b - RM94m) (Based on the trailing twelve months to June 2024).

Thus, Mi Technovation Berhad has an ROCE of 8.4%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.4%.

Check out our latest analysis for Mi Technovation Berhad

Above you can see how the current ROCE for Mi Technovation 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 Mi Technovation Berhad .

How Are Returns Trending?

When we looked at the ROCE trend at Mi Technovation Berhad, we didn't gain much confidence. To be more specific, ROCE has fallen from 13% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

What We Can Learn From Mi Technovation Berhad's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Mi Technovation Berhad is reinvesting for growth and has higher sales as a result. These trends are starting to be recognized by investors since the stock has delivered a 31% gain to shareholders who've held over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

Mi Technovation Berhad does have some risks though, and we've spotted 1 warning sign for Mi Technovation Berhad that you might be interested in.

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.