What We Make Of PPS International (Holdings)'s (HKG:8201) Returns On Capital

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. 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. So when we looked at PPS International (Holdings) (HKG:8201) and its trend of ROCE, we really liked what we saw.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from 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)

0.052 = HK$10m ÷ (HK$265m - HK$74m) (Based on the trailing twelve months to September 2020).

So, PPS International (Holdings) has an ROCE of 5.2%. In absolute terms, that's a low return and it also under-performs the Commercial Services industry average of 9.9%.

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're interested in investigating PPS International (Holdings)'s past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For PPS International (Holdings) Tell Us?

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 5.2% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, PPS International (Holdings) is utilizing 117% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Key Takeaway

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. Although the company may be facing some issues elsewhere since the stock has plunged 95% in the last five years. Still, it's worth doing some further research to see if the trends will continue into the future.

If you want to know some of the risks facing PPS International (Holdings) we've found 2 warning signs (1 is a bit concerning!) that you should be aware of before investing here.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. 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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