What are the early trends we should look for to identify a stock that could 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 investigating Swift Haulage Berhad (KLSE:SWIFT), we don't think it's current trends fit the mold of a multi-bagger.
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 Swift Haulage Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.066 = RM87m ÷ (RM1.7b - RM366m) (Based on the trailing twelve months to June 2024).
Thus, Swift Haulage Berhad has an ROCE of 6.6%. In absolute terms, that's a low return but it's around the Logistics industry average of 6.4%.
See our latest analysis for Swift Haulage Berhad
In the above chart we have measured Swift Haulage Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Swift Haulage Berhad for free.
On the surface, the trend of ROCE at Swift Haulage Berhad doesn't inspire confidence. To be more specific, ROCE has fallen from 10% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.
On a related note, Swift Haulage Berhad has decreased its current liabilities to 22% of total assets. That could partly explain why the ROCE has dropped. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.
In summary, Swift Haulage Berhad is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has declined 12% over the last year, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Swift Haulage Berhad has the makings of a multi-bagger.