Returns At Horizon Construction Development (HKG:9930) Appear To Be Weighed Down

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Horizon Construction Development (HKG:9930) and its ROCE trend, we weren't exactly thrilled.

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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. The formula for this calculation on Horizon Construction Development is:

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

0.065 = CN¥1.7b ÷ (CN¥36b - CN¥10b) (Based on the trailing twelve months to December 2024).

So, Horizon Construction Development has an ROCE of 6.5%. On its own that's a low return on capital but it's in line with the industry's average returns of 6.0%.

See our latest analysis for Horizon Construction Development

Above you can see how the current ROCE for Horizon Construction Development compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Horizon Construction Development .

What Can We Tell From Horizon Construction Development's ROCE Trend?

There are better returns on capital out there than what we're seeing at Horizon Construction Development. Over the past four years, ROCE has remained relatively flat at around 6.5% and the business has deployed 140% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line

In conclusion, Horizon Construction Development has been investing more capital into the business, but returns on that capital haven't increased. Unsurprisingly then, the total return to shareholders over the last year has been flat. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

On a final note, we found 2 warning signs for Horizon Construction Development (1 is significant) you should be aware of.

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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.