Here's What To Make Of Sun Hing Printing Holdings' (HKG:1975) Decelerating Rates Of Return

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So, when we ran our eye over Sun Hing Printing Holdings' (HKG:1975) trend of ROCE, we liked what we saw.

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

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 Sun Hing Printing Holdings:

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

0.17 = HK$58m ÷ (HK$422m - HK$78m) (Based on the trailing twelve months to December 2020).

So, Sun Hing Printing Holdings has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Commercial Services industry average of 9.2% it's much better.

Check out our latest analysis for Sun Hing Printing Holdings

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

What The Trend Of ROCE Can Tell Us

While the returns on capital are good, they haven't moved much. The company has employed 76% more capital in the last five years, and the returns on that capital have remained stable at 17%. 17% is a pretty standard return, and it provides some comfort knowing that Sun Hing Printing Holdings has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Key Takeaway

To sum it up, Sun Hing Printing Holdings has simply been reinvesting capital steadily, at those decent rates of return. And since the stock has risen strongly over the last three years, it appears the market might expect this trend to continue. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Sun Hing Printing Holdings does have some risks though, and we've spotted 2 warning signs for Sun Hing Printing Holdings that you might be interested in.

While Sun Hing Printing Holdings 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.
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