2 days ago
Be Wary Of Luster Industries Bhd (KLSE:LUSTER) And Its Returns On Capital
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Luster Industries Bhd (KLSE:LUSTER), we don't think it's current trends fit the mold of a multi-bagger.
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What Is Return On Capital Employed (ROCE)?
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. Analysts use this formula to calculate it for Luster Industries Bhd:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.02 = RM8.3m ÷ (RM558m - RM145m) (Based on the trailing twelve months to March 2025).
Thus, Luster Industries Bhd has an ROCE of 2.0%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 8.8%.
Check out our latest analysis for Luster Industries Bhd
Historical performance is a great place to start when researching a stock so above you can see the gauge for Luster Industries Bhd's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Luster Industries Bhd.
The Trend Of ROCE
In terms of Luster Industries Bhd's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 7.2% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.
The Key Takeaway
Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Luster Industries Bhd. However, despite the promising trends, the stock has fallen 63% over the last five years, so there might be an opportunity here for astute investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.
If you'd like to know more about Luster Industries Bhd, we've spotted 2 warning signs, and 1 of them doesn't sit too well with us.
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) 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.
