Stella International Holdings' (HKG:1836) Returns On Capital Are Heading Higher

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Stella International Holdings (HKG:1836) and its trend of ROCE, we really liked what we saw.

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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. To calculate this metric for Stella International Holdings, this is the formula:

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

0.15 = US$171m ÷ (US$1.4b - US$279m) (Based on the trailing twelve months to December 2024).

So, Stella International Holdings has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 12% generated by the Luxury industry.

Check out our latest analysis for Stella International Holdings

Above you can see how the current ROCE for Stella International Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Stella International Holdings .

What Can We Tell From Stella International Holdings' ROCE Trend?

Stella International Holdings' ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 45% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

Our Take On Stella International Holdings' ROCE

To sum it up, Stella International Holdings is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 224% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Stella International Holdings can keep these trends up, it could have a bright future ahead.

Like most companies, Stella International Holdings does come with some risks, and we've found 1 warning sign that you should be aware of.

While Stella 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.