25-03-2025
Alpha IVF Group Berhad (KLSE:ALPHA) Knows How To Allocate Capital Effectively
To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. Speaking of which, we noticed some great changes in Alpha IVF Group Berhad's (KLSE:ALPHA) returns on capital, so let's have a look.
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For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Alpha IVF Group Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.34 = RM72m ÷ (RM233m - RM22m) (Based on the trailing twelve months to November 2024).
Therefore, Alpha IVF Group Berhad has an ROCE of 34%. That's a fantastic return and not only that, it outpaces the average of 9.9% earned by companies in a similar industry.
See our latest analysis for Alpha IVF Group Berhad
Above you can see how the current ROCE for Alpha IVF Group Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Alpha IVF Group Berhad .
Investors would be pleased with what's happening at Alpha IVF Group Berhad. Over the last four years, returns on capital employed have risen substantially to 34%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 226%. So we're very much inspired by what we're seeing at Alpha IVF Group Berhad thanks to its ability to profitably reinvest capital.
On a related note, the company's ratio of current liabilities to total assets has decreased to 9.5%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.
To sum it up, Alpha IVF Group Berhad has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has only returned 3.0% to shareholders over the last year, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.
If you'd like to know more about Alpha IVF Group Berhad, we've spotted 2 warning signs, and 1 of them makes us a bit uncomfortable.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.
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