What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, SHH Resources Holdings Berhad (KLSE:SHH) looks quite promising in regards to its trends of return on capital.

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 SHH Resources Holdings Berhad:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.073 = RM6.2m ÷ (RM100m - RM15m) (Based on the trailing twelve months to June 2024).

Thus, SHH Resources Holdings Berhad has an ROCE of 7.3%. In absolute terms, that's a low return and it also under-performs the Consumer Durables industry average of 9.7%.

View our latest analysis for SHH Resources 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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of SHH Resources Holdings Berhad.

SHH Resources Holdings Berhad has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 7.3% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, SHH Resources Holdings Berhad is utilizing 28% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

On a related note, the company's ratio of current liabilities to total assets has decreased to 15%, which basically reduces it's funding from the likes of short-term creditors or suppliers. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.