BP Stock – Returns Are Gaining Momentum At BP Plastics Holding Bhd (KLSE:BPPLAS)
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we’ve noticed some promising trends at BP Plastics Holding Bhd (KLSE:BPPLAS) so let’s look a bit deeper.
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. To calculate this metric for BP Plastics Holding Bhd, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.17 = RM37m ÷ (RM288m – RM73m) (Based on the trailing twelve months to December 2020).
Thus, BP Plastics Holding Bhd has an ROCE of 17%. In absolute terms, that’s a satisfactory return, but compared to the Packaging industry average of 10% it’s much better.
See our latest analysis for BP Plastics Holding Bhd
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 BP Plastics Holding Bhd has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
How Are Returns Trending?
BP Plastics Holding Bhd is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 17%. The amount of capital employed has increased too, by 24%. This can indicate that there’s plenty of opportunities to invest capital internally and at ever higher rates, a combination that’s common among multi-baggers.
Our Take On BP Plastics Holding Bhd’s ROCE
To sum it up, BP Plastics Holding Bhd 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 20% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.
If you’d like to know about the risks facing BP Plastics Holding Bhd, we’ve discovered 2 warning signs that you should be aware of.
While BP Plastics Holding 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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This article by Simply Wall St is general in nature. 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.
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