Hipages Group Holdings (ASX:HPG) Is Doing The Right Things To Multiply Its Share Price

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Hipages Group Holdings (ASX:HPG) looks quite promising in regards to its trends of return on capital.

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. The formula for this calculation on Hipages Group Holdings is:

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

0.043 = AU$1.8m ÷ (AU$57m - AU$15m) (Based on the trailing twelve months to June 2021).

Therefore, Hipages Group Holdings has an ROCE of 4.3%. In absolute terms, that's a low return and it also under-performs the Interactive Media and Services industry average of 13%.

See our latest analysis for Hipages Group Holdings

Above you can see how the current ROCE for Hipages Group Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Hipages Group Holdings here for free.

What Can We Tell From Hipages Group Holdings' ROCE Trend?

We're delighted to see that Hipages Group Holdings is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses three years ago, but now it's earning 4.3% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Hipages Group Holdings is utilizing 140% more capital than it was three 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.

One more thing to note, Hipages Group Holdings has decreased current liabilities to 27% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Bottom Line

In summary, it's great to see that Hipages Group Holdings has managed to break into profitability and is continuing to reinvest in its business. Considering the stock has delivered 6.0% to its stockholders over the last year, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

On a final note, we've found 1 warning sign for Hipages Group Holdings that we think you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.