Stock Analysis

Shareholders Are Optimistic That Pizu Group Holdings (HKG:8053) Will Multiply In Value

SEHK:8053
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What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Pizu Group Holdings (HKG:8053) looks attractive right now, so lets see what the trend of returns can tell us.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Pizu Group Holdings:

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

0.40 = CN¥506m ÷ (CN¥1.8b - CN¥559m) (Based on the trailing twelve months to December 2020).

Therefore, Pizu Group Holdings has an ROCE of 40%. That's a fantastic return and not only that, it outpaces the average of 9.4% earned by companies in a similar industry.

Check out our latest analysis for Pizu Group Holdings

roce
SEHK:8053 Return on Capital Employed June 14th 2021

Historical performance is a great place to start when researching a stock so above you can see the gauge for Pizu Group Holdings' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Pizu Group Holdings, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

It's hard not to be impressed by Pizu Group Holdings' returns on capital. The company has consistently earned 40% for the last five years, and the capital employed within the business has risen 486% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

What We Can Learn From Pizu Group Holdings' ROCE

In summary, we're delighted to see that Pizu Group Holdings has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. On top of that, the stock has rewarded shareholders with a remarkable 220% return to those who've held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Pizu Group Holdings does have some risks though, and we've spotted 1 warning sign for Pizu Group Holdings that you might be interested in.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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