Return Trends At CK Hutchison Holdings (HKG:1) Aren't Appealing

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating CK Hutchison Holdings (HKG:1), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for CK Hutchison Holdings, this is the formula:

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

0.031 = HK$30b ÷ (HK$1.1t - HK$151b) (Based on the trailing twelve months to June 2022).

So, CK Hutchison Holdings has an ROCE of 3.1%. Even though it's in line with the industry average of 3.1%, it's still a low return by itself.

See our latest analysis for CK Hutchison Holdings

Above you can see how the current ROCE for CK Hutchison Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for CK Hutchison Holdings.

The Trend Of ROCE

Over the past five years, CK Hutchison Holdings' ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if CK Hutchison Holdings doesn't end up being a multi-bagger in a few years time. With fewer investment opportunities, it makes sense that CK Hutchison Holdings has been paying out a decent 32% of its earnings to shareholders. Unless businesses have highly compelling growth opportunities, they'll typically return some money to shareholders.

The Bottom Line On CK Hutchison Holdings' ROCE

We can conclude that in regards to CK Hutchison Holdings' returns on capital employed and the trends, there isn't much change to report on. Since the stock has declined 41% over the last five years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

One final note, you should learn about the 2 warning signs we've spotted with CK Hutchison Holdings (including 1 which is concerning) .

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.

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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.