PPS International (Holdings) (HKG:8201) Shareholders Will Want The ROCE Trajectory To Continue

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. With that in mind, we've noticed some promising trends at PPS International (Holdings) (HKG:8201) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

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. The formula for this calculation on PPS International (Holdings) is:

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

0.049 = HK$11m ÷ (HK$289m - HK$74m) (Based on the trailing twelve months to March 2022).

Thus, PPS International (Holdings) has an ROCE of 4.9%. 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 PPS International (Holdings)

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 want to delve into the historical earnings, revenue and cash flow of PPS International (Holdings), check out these free graphs here.

How Are Returns Trending?

PPS International (Holdings) has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 4.9% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, PPS International (Holdings) is utilizing 72% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

What We Can Learn From PPS International (Holdings)'s ROCE

Overall, PPS International (Holdings) gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. However the stock is down a substantial 82% in the last five years so there could be other areas of the business hurting its prospects. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.

One more thing: We've identified 2 warning signs with PPS International (Holdings) (at least 1 which shouldn't be ignored) , and understanding these would certainly be useful.

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.