Return Trends At Perennial International (HKG:725) Aren't Appealing

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Perennial International (HKG:725), it didn't seem to tick all of these boxes.

Understanding 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. Analysts use this formula to calculate it for Perennial International:

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

0.036 = HK$21m ÷ (HK$716m - HK$122m) (Based on the trailing twelve months to June 2022).

Therefore, Perennial International has an ROCE of 3.6%. In absolute terms, that's a low return and it also under-performs the Electrical industry average of 7.8%.

See our latest analysis for Perennial International

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

How Are Returns Trending?

Things have been pretty stable at Perennial International, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if Perennial International doesn't end up being a multi-bagger in a few years time.

The Key Takeaway

In a nutshell, Perennial International has been trudging along with the same returns from the same amount of capital over the last five years. Since the stock has declined 59% over the last five years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

If you want to know some of the risks facing Perennial International we've found 3 warning signs (1 shouldn't be ignored!) that you should be aware of before investing here.

While Perennial International isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.