Stock Analysis

Why We Like The Returns At Sino-Ocean Service Holding (HKG:6677)

SEHK:6677
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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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. With that in mind, the ROCE of Sino-Ocean Service Holding (HKG:6677) looks great, so lets see what the trend 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. To calculate this metric for Sino-Ocean Service Holding, this is the formula:

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

0.21 = CN¥491m ÷ (CN¥3.5b - CN¥1.2b) (Based on the trailing twelve months to June 2021).

Thus, Sino-Ocean Service Holding has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Commercial Services industry average of 8.8%.

View our latest analysis for Sino-Ocean Service Holding

roce
SEHK:6677 Return on Capital Employed January 29th 2022

Above you can see how the current ROCE for Sino-Ocean Service Holding 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 report on analyst forecasts for the company.

So How Is Sino-Ocean Service Holding's ROCE Trending?

We like the trends that we're seeing from Sino-Ocean Service Holding. Over the last three years, returns on capital employed have risen substantially to 21%. Basically the business is earning more per dollar of capital invested and in addition to that, 35% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From Sino-Ocean Service Holding's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Sino-Ocean Service Holding has. Astute investors may have an opportunity here because the stock has declined 13% in the last year. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

While Sino-Ocean Service Holding looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether 6677 is currently trading for a fair price.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

Valuation is complex, but we're helping make it simple.

Find out whether Sino-Ocean Service Holding is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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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.