What Do The Returns At Sun.King Power Electronics Group (HKG:580) Mean Going Forward?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. With that in mind, we've noticed some promising trends at Sun.King Power Electronics Group (HKG:580) so let's look a bit deeper.

What is 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. To calculate this metric for Sun.King Power Electronics Group, this is the formula:

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

0.12 = CN¥211m ÷ (CN¥2.5b - CN¥806m) (Based on the trailing twelve months to June 2020).

So, Sun.King Power Electronics Group has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 8.7% generated by the Electrical industry.

Check out our latest analysis for Sun.King Power Electronics Group

Above you can see how the current ROCE for Sun.King Power Electronics Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Sun.King Power Electronics Group here for free.

So How Is Sun.King Power Electronics Group's ROCE Trending?

Sun.King Power Electronics Group is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 12%. The amount of capital employed has increased too, by 94%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Key Takeaway

To sum it up, Sun.King Power Electronics Group has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 114% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Sun.King Power Electronics Group does have some risks, we noticed 3 warning signs (and 1 which is a bit concerning) we think you should know about.

While Sun.King Power Electronics 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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