Stock Analysis

PPS International (Holdings) (HKG:8201) Might Have The Makings Of A Multi-Bagger

SEHK:8201
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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? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in PPS International (Holdings)'s (HKG:8201) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for PPS International (Holdings), this is the formula:

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

0.029 = HK$6.3m ÷ (HK$292m - HK$77m) (Based on the trailing twelve months to September 2022).

Thus, PPS International (Holdings) has an ROCE of 2.9%. In absolute terms, that's a low return and it also under-performs the Commercial Services industry average of 8.2%.

Check out our latest analysis for PPS International (Holdings)

roce
SEHK:8201 Return on Capital Employed December 22nd 2022

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

What Can We Tell From PPS International (Holdings)'s ROCE Trend?

We're delighted to see that PPS International (Holdings) is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 2.9% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, PPS International (Holdings) is utilizing 32% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

Our Take On PPS International (Holdings)'s ROCE

In summary, it's great to see that PPS International (Holdings) has managed to break into profitability and is continuing to reinvest in its business. Although the company may be facing some issues elsewhere since the stock has plunged 78% in the last five years. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.

PPS International (Holdings) does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those is concerning...

While PPS International (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.