We're Watching These Trends At 361 Degrees International (HKG:1361)

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. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating 361 Degrees International (HKG:1361), we don't think it's current trends fit the mold of a multi-bagger.

What is Return On Capital Employed (ROCE)?

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 361 Degrees International, this is the formula:

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

0.096 = CN¥679m ÷ (CN¥12b - CN¥4.7b) (Based on the trailing twelve months to June 2020).

So, 361 Degrees International has an ROCE of 9.6%. In absolute terms, that's a low return but it's around the Luxury industry average of 9.2%.

See our latest analysis for 361 Degrees International

In the above chart we have measured 361 Degrees International's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From 361 Degrees International's ROCE Trend?

Over the past five years, 361 Degrees International's ROCE and capital employed have both remained mostly flat. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if 361 Degrees International doesn't end up being a multi-bagger in a few years time. With fewer investment opportunities, it makes sense that 361 Degrees International has been paying out a decent 44% of its earnings to shareholders. Unless businesses have highly compelling growth opportunities, they'll typically return some money to shareholders.

Another point to note, we noticed the company has increased current liabilities over the last five years. This is intriguing because if current liabilities hadn't increased to 40% of total assets, this reported ROCE would probably be less than9.6% because total capital employed would be higher.The 9.6% ROCE could be even lower if current liabilities weren't 40% of total assets, because the the formula would show a larger base of total capital employed. With that in mind, just be wary if this ratio increases in the future, because if it gets particularly high, this brings with it some new elements of risk.

What We Can Learn From 361 Degrees International's ROCE

We can conclude that in regards to 361 Degrees International's returns on capital employed and the trends, there isn't much change to report on. And in the last five years, the stock has given away 35% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

If you want to continue researching 361 Degrees International, you might be interested to know about the 1 warning sign that our analysis has discovered.

While 361 Degrees 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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