Regina Miracle International (Holdings) (HKG:2199) Could Be Struggling To Allocate Capital

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. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Regina Miracle International (Holdings) (HKG:2199) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What is it?

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. The formula for this calculation on Regina Miracle International (Holdings) is:

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

0.044 = HK$281m ÷ (HK$8.7b - HK$2.3b) (Based on the trailing twelve months to March 2021).

Therefore, Regina Miracle International (Holdings) has an ROCE of 4.4%. Ultimately, that's a low return and it under-performs the Luxury industry average of 6.7%.

Check out our latest analysis for Regina Miracle International (Holdings)

In the above chart we have measured Regina Miracle International (Holdings)'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 Regina Miracle International (Holdings)'s ROCE Trend?

When we looked at the ROCE trend at Regina Miracle International (Holdings), we didn't gain much confidence. Around five years ago the returns on capital were 20%, but since then they've fallen to 4.4%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

In Conclusion...

To conclude, we've found that Regina Miracle International (Holdings) is reinvesting in the business, but returns have been falling. And in the last five years, the stock has given away 19% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

One final note, you should learn about the 3 warning signs we've spotted with Regina Miracle International (Holdings) (including 1 which is significant) .

While Regina Miracle 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.

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.

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