Haitian International Holdings (HKG:1882) Has More To Do To Multiply In Value Going Forward

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So, when we ran our eye over Haitian International Holdings' (HKG:1882) trend of ROCE, we liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for Haitian International Holdings, this is the formula:

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

0.18 = CN¥3.0b ÷ (CN¥25b - CN¥8.5b) (Based on the trailing twelve months to June 2022).

Thus, Haitian International Holdings has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 7.0% it's much better.

Check out our latest analysis for Haitian International Holdings

Above you can see how the current ROCE for Haitian International Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Haitian International Holdings Tell Us?

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 18% and the business has deployed 49% more capital into its operations. 18% is a pretty standard return, and it provides some comfort knowing that Haitian International Holdings has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

What We Can Learn From Haitian International Holdings' ROCE

In the end, Haitian International Holdings has proven its ability to adequately reinvest capital at good rates of return. And given the stock has only risen 4.2% over the last five years, we'd suspect the market is beginning to recognize these trends. So to determine if Haitian International Holdings is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

If you want to continue researching Haitian International Holdings, you might be interested to know about the 1 warning sign that our analysis has discovered.

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.