Returns At Net-a-Go Technology (HKG:1483) Are On The Way Up

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Net-a-Go Technology (HKG:1483) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

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 Net-a-Go Technology is:

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

0.016 = HK$11m ÷ (HK$849m - HK$153m) (Based on the trailing twelve months to December 2021).

Thus, Net-a-Go Technology has an ROCE of 1.6%. In absolute terms, that's a low return and it also under-performs the Commercial Services industry average of 8.0%.

See our latest analysis for Net-a-Go Technology

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

So How Is Net-a-Go Technology's ROCE Trending?

The fact that Net-a-Go Technology is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 1.6% which is a sight for sore eyes. In addition to that, Net-a-Go Technology is employing 1,346% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 18%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

Our Take On Net-a-Go Technology's ROCE

Long story short, we're delighted to see that Net-a-Go Technology's reinvestment activities have paid off and the company is now profitable. And since the stock has fallen 65% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

One final note, you should learn about the 3 warning signs we've spotted with Net-a-Go Technology (including 1 which shouldn't be ignored) .

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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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.