20-02-2025
Investors Will Want Only World Group Holdings Berhad's (KLSE:OWG) Growth In ROCE To Persist
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Speaking of which, we noticed some great changes in Only World Group Holdings Berhad's (KLSE:OWG) returns on capital, so let's have a look.
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 Only World Group Holdings Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.029 = RM9.7m ÷ (RM417m - RM82m) (Based on the trailing twelve months to September 2024).
So, Only World Group Holdings Berhad has an ROCE of 2.9%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 7.6%.
View our latest analysis for Only World Group Holdings Berhad
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Only World Group Holdings Berhad has performed in the past in other metrics, you can view this free graph of Only World Group Holdings Berhad's past earnings, revenue and cash flow.
Only World Group Holdings Berhad has broken into the black (profitability) and we're sure it's a sight for sore eyes. While the business was unprofitable in the past, it's now turned things around and is earning 2.9% on its capital. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.
In summary, we're delighted to see that Only World Group Holdings Berhad has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Given the stock has declined 39% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.
One more thing to note, we've identified 4 warning signs with Only World Group Holdings Berhad and understanding these should be part of your investment process.
While Only World Group Holdings Berhad 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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