Returns At Wai Kee Holdings (HKG:610) Are On The Way Up

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. So on that note, Wai Kee Holdings (HKG:610) looks quite promising in regards to its trends of return on capital.

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. Analysts use this formula to calculate it for Wai Kee Holdings:

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

0.025 = HK$272m ÷ (HK$15b - HK$4.4b) (Based on the trailing twelve months to December 2020).

Thus, Wai Kee Holdings has an ROCE of 2.5%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 9.1%.

View our latest analysis for Wai Kee Holdings

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

How Are Returns Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 2.5%. The amount of capital employed has increased too, by 66%. 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 Bottom Line On Wai Kee Holdings' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Wai Kee Holdings has. Since the stock has returned a staggering 152% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a separate note, we've found 1 warning sign for Wai Kee Holdings you'll probably want to know about.

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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