China Pipe Group (HKG:380) Is Doing The Right Things To Multiply Its Share Price

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, China Pipe Group (HKG:380) looks quite promising in regards to its trends of return on capital.

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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 China Pipe Group is:

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

0.11 = HK$92m ÷ (HK$1.0b - HK$175m) (Based on the trailing twelve months to December 2024).

So, China Pipe Group has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 6.0% generated by the Trade Distributors industry.

View our latest analysis for China Pipe Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for China Pipe Group's ROCE against it's prior returns. If you're interested in investigating China Pipe Group's past further, check out this free graph covering China Pipe Group's past earnings, revenue and cash flow.

So How Is China Pipe Group's ROCE Trending?

We like the trends that we're seeing from China Pipe Group. The data shows that returns on capital have increased substantially over the last five years to 11%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 29%. So we're very much inspired by what we're seeing at China Pipe Group thanks to its ability to profitably reinvest capital.

The Bottom Line On China Pipe Group's ROCE

All in all, it's terrific to see that China Pipe Group is reaping the rewards from prior investments and is growing its capital base. And with a respectable 48% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if China Pipe Group can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 1 warning sign facing China Pipe Group that you might find interesting.

While China Pipe Group 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.

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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.