Is Cloudpoint Technology Berhad (KLSE:CLOUDPT) Struggling? Uncover Troubling Returns on Capital

Looking for a stock that could do well over time? There are a couple of key trends to keep an eye on. First, you should check if the company’s return on capital employed (ROCE) is rising. Second, see if it has a growing base of capital employed. These signs usually point to a solid business model with good opportunities for reinvestment. Let’s take a closer look at Cloudpoint Technology Berhad (KLSE:CLOUDPT). It shows a strong ROCE, but let’s dig into the trend.

If you’re not familiar with ROCE, it tells us how much profit a company makes compared to the capital it uses. To get this figure for Cloudpoint Technology, we use this formula:

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

0.29 = RM23m ÷ (RM109m – RM30m) (For the twelve months ending September 2024).

This means that Cloudpoint Technology Berhad has an ROCE of 29%. That’s impressive! It also beats the average of 9.5% in its industry.

The chart above gives us a glimpse into Cloudpoint Technology Berhad’s past ROCE, but what matters more is the future. It seems that the trend in ROCE isn’t very encouraging. A few years back, returns were higher at 47%, but they have since fallen. The company is using more capital, yet sales haven’t increased significantly recently, suggesting these investments might take longer to pay off. Keeping an eye on future earnings will be important.

Interestingly, Cloudpoint Technology has reduced its current liabilities to 28% of total assets. This could be a reason behind the drop in ROCE. A lower reliance on short-term creditors might reduce some risk but can also impact how efficiently the company generates ROCE.

In summary, while it’s encouraging to see Cloudpoint reinvesting in its business, the declining returns are a concern. Despite a strong 76% stock increase over the last year, investors may be hoping for better results ahead. Unless trends improve, it may be wise to temper expectations.

Cloudpoint Technology Berhad does have some challenges; we’ve noted a couple of warning signs, one of which isn’t so great. Keeping informed is key in investing.

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This article by Simply Wall St aims to provide general information. We base our commentary on historical data and analyst forecasts using a straightforward approach. It is not financial advice and doesn’t recommend buying or selling any stocks. Remember, every investment decision should match your personal goals and situation. Our analysis may not consider the latest company news or qualitative information. Simply Wall St does not hold any positions in the stocks mentioned.