Returns On Capital At CK Hutchison Holdings (HKG:1) Have Stalled

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. However, after briefly looking over the numbers, we don't think CK Hutchison Holdings (HKG:1) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on CK Hutchison Holdings is:

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

0.03 = 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.

View our latest analysis for CK Hutchison Holdings

In the above chart we have measured CK Hutchison Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for CK Hutchison Holdings.

What Does the ROCE Trend For CK Hutchison Holdings Tell Us?

Things have been pretty stable at CK Hutchison Holdings, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're 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. This probably explains why CK Hutchison Holdings is paying out 31% of its income to shareholders in the form of dividends. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

What We Can Learn From CK Hutchison Holdings' ROCE

In a nutshell, CK Hutchison Holdings has been trudging along with the same returns from the same amount of capital over the last five years. And in the last five years, the stock has given away 49% so the market doesn't look too hopeful on these trends strengthening any time soon. 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.

CK Hutchison Holdings does have some risks, we noticed 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

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.