Can IWS Group Holdings (HKG:8441) Keep Up These Impressive Returns?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So, when we ran our eye over IWS Group Holdings' (HKG:8441) 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 IWS Group Holdings is:

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

0.43 = HK$80m ÷ (HK$237m - HK$51m) (Based on the trailing twelve months to September 2020).

So, IWS Group Holdings has an ROCE of 43%. That's a fantastic return and not only that, it outpaces the average of 11% earned by companies in a similar industry.

Check out our latest analysis for IWS Group Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for IWS Group Holdings' ROCE against it's prior returns. If you'd like to look at how IWS Group Holdings has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From IWS Group Holdings' ROCE Trend?

It's hard not to be impressed by IWS Group Holdings' returns on capital. The company has consistently earned 43% for the last three years, and the capital employed within the business has risen 364% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If IWS Group Holdings can keep this up, we'd be very optimistic about its future.

The Key Takeaway

IWS Group Holdings has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. In light of this, the stock has only gained 4.2% over the last year for shareholders who have owned the stock in this period. So because of the trends we're seeing, we'd recommend looking further into this stock to see if it has the makings of a multi-bagger.

IWS Group Holdings does have some risks, we noticed 3 warning signs (and 1 which is concerning) we think you should know about.

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.

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