Man Wah Holdings (HKG:1999) Is Aiming To Keep Up Its 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at Man Wah Holdings' (HKG:1999) ROCE trend, we were very happy with what we saw.

The end of cancer? These 15 emerging AI stocks are developing tech that will allow early identification of life changing diseases like cancer and Alzheimer's.

Understanding 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. Analysts use this formula to calculate it for Man Wah Holdings:

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

0.22 = HK$3.1b ÷ (HK$21b - HK$7.0b) (Based on the trailing twelve months to September 2024).

So, Man Wah Holdings has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Consumer Durables industry average of 12%.

See our latest analysis for Man Wah Holdings

Above you can see how the current ROCE for Man Wah 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 Man Wah Holdings .

How Are Returns Trending?

It's hard not to be impressed by Man Wah Holdings' returns on capital. The company has employed 81% more capital in the last five years, and the returns on that capital have remained stable at 22%. Now considering ROCE is an attractive 22%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Man Wah Holdings can keep this up, we'd be very optimistic about its future.

The Bottom Line

Man Wah Holdings has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. However, over the last five years, the stock has only delivered a 31% return to shareholders who held over that period. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

Man Wah Holdings does have some risks though, and we've spotted 1 warning sign for Man Wah Holdings that you might be interested in.

Man Wah Holdings is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.