Some Investors May Be Worried About Regina Miracle International (Holdings)'s (HKG:2199) Returns On 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. 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 Regina Miracle International (Holdings) (HKG:2199), we don't think it's current trends fit the mold of a multi-bagger.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Regina Miracle International (Holdings):

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

0.084 = HK$603m ÷ (HK$9.3b - HK$2.1b) (Based on the trailing twelve months to September 2021).

Therefore, Regina Miracle International (Holdings) has an ROCE of 8.4%. On its own, that's a low figure but it's around the 7.3% average generated by the Luxury industry.

View our latest analysis for Regina Miracle International (Holdings)

Above you can see how the current ROCE for Regina Miracle 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 report on analyst forecasts for the company.

What Does the ROCE Trend For Regina Miracle International (Holdings) Tell Us?

In terms of Regina Miracle International (Holdings)'s historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 8.4% from 12% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line

In summary, despite lower returns in the short term, we're encouraged to see that Regina Miracle International (Holdings) is reinvesting for growth and has higher sales as a result. These trends are starting to be recognized by investors since the stock has delivered a 0.03% gain to shareholders who've held over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

If you want to know some of the risks facing Regina Miracle International (Holdings) we've found 2 warning signs (1 is a bit concerning!) that you should be aware of before investing here.

While Regina Miracle International (Holdings) 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.