Chow Sang Sang Holdings International (HKG:116) Has More To Do To Multiply In Value Going Forward

If you're looking for a multi-bagger, there's a few things to 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Chow Sang Sang Holdings International (HKG:116) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Chow Sang Sang Holdings International, this is the formula:

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

0.092 = HK$1.3b ÷ (HK$17b - HK$3.3b) (Based on the trailing twelve months to June 2021).

Thus, Chow Sang Sang Holdings International has an ROCE of 9.2%. On its own that's a low return, but compared to the average of 7.0% generated by the Luxury industry, it's much better.

Check out our latest analysis for Chow Sang Sang Holdings International

In the above chart we have measured Chow Sang Sang Holdings International's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Chow Sang Sang Holdings International here for free.

How Are Returns Trending?

The returns on capital haven't changed much for Chow Sang Sang Holdings International in recent years. The company has employed 46% more capital in the last five years, and the returns on that capital have remained stable at 9.2%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Key Takeaway

In summary, Chow Sang Sang Holdings International has simply been reinvesting capital and generating the same low rate of return as before. And in the last five years, the stock has given away 12% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Chow Sang Sang Holdings International has the makings of a multi-bagger.

On a separate note, we've found 1 warning sign for Chow Sang Sang Holdings International you'll probably want to know about.

While Chow Sang Sang Holdings International may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.