Lai Si Enterprise Holding (HKG:2266) Shareholders Will Want The ROCE Trajectory To Continue

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Lai Si Enterprise Holding (HKG:2266) and its trend of ROCE, we really liked what we saw.

The end of cancer? These 15 emerging AI stocks are developing tech that will allow early identification of life changing diseases like cancer and Alzheimer's.

What Is 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 Lai Si Enterprise Holding, this is the formula:

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

0.18 = MO$24m ÷ (MO$217m - MO$85m) (Based on the trailing twelve months to December 2024).

Therefore, Lai Si Enterprise Holding has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Construction industry average of 5.9% it's much better.

See our latest analysis for Lai Si Enterprise Holding

Historical performance is a great place to start when researching a stock so above you can see the gauge for Lai Si Enterprise Holding's ROCE against it's prior returns. If you'd like to look at how Lai Si Enterprise Holding has performed in the past in other metrics, you can view this free graph of Lai Si Enterprise Holding's past earnings, revenue and cash flow.

So How Is Lai Si Enterprise Holding's ROCE Trending?

Lai Si Enterprise Holding has not disappointed in regards to ROCE growth. The figures show that over the last five years, returns on capital have grown by 512%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Interestingly, the business may be becoming more efficient because it's applying 45% less capital than it was five years ago. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

In Conclusion...

In the end, Lai Si Enterprise Holding has proven it's capital allocation skills are good with those higher returns from less amount of capital. Astute investors may have an opportunity here because the stock has declined 52% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

If you'd like to know about the risks facing Lai Si Enterprise Holding, we've discovered 1 warning sign that you should be aware of.

While Lai Si Enterprise Holding may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.