What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Rex International Holding (SGX:5WH) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is Return On Capital Employed (ROCE)?

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 Rex International Holding is:

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

0.035 = US$16m ÷ (US$608m - US$157m) (Based on the trailing twelve months to June 2024).

Thus, Rex International Holding has an ROCE of 3.5%. In absolute terms, that's a low return and it also under-performs the Energy Services industry average of 11%.

Check out our latest analysis for Rex International Holding

SGX:5WH Return on Capital Employed January 16th 2025

In the above chart we have measured Rex International Holding's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Rex International Holding .

What Can We Tell From Rex International Holding's ROCE Trend?

On the surface, the trend of ROCE at Rex International Holding doesn't inspire confidence. To be more specific, ROCE has fallen from 9.2% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

In Conclusion...

While returns have fallen for Rex International Holding in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. However, despite the promising trends, the stock has fallen 23% over the last five years, so there might be an opportunity here for astute investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

If you're still interested in Rex International Holding it's worth checking out our FREE intrinsic value approximation for 5WH to see if it's trading at an attractive price in other respects.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.