07-04-2025
Capital Allocation Trends At Kobay Technology Bhd (KLSE:KOBAY) Aren't Ideal
To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Kobay Technology Bhd (KLSE:KOBAY) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
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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. The formula for this calculation on Kobay Technology Bhd is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.051 = RM23m ÷ (RM610m - RM153m) (Based on the trailing twelve months to December 2024).
Thus, Kobay Technology Bhd has an ROCE of 5.1%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 8.2%.
Check out our latest analysis for Kobay Technology Bhd
Historical performance is a great place to start when researching a stock so above you can see the gauge for Kobay Technology 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 Kobay Technology Bhd .
When we looked at the ROCE trend at Kobay Technology Bhd, we didn't gain much confidence. To be more specific, ROCE has fallen from 12% 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. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.
While returns have fallen for Kobay Technology Bhd in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And the stock has done incredibly well with a 171% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.
On a final note, we found 2 warning signs for Kobay Technology Bhd (1 makes us a bit uncomfortable) you should be aware of.
While Kobay Technology Bhd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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