Bosideng International Holdings (HKG:3998) Might Have The Makings Of A Multi-Bagger

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Speaking of which, we noticed some great changes in Bosideng International Holdings' (HKG:3998) returns on capital, so let's have a look.

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

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

0.18 = CN¥2.6b ÷ (CN¥21b - CN¥6.6b) (Based on the trailing twelve months to March 2022).

So, Bosideng International Holdings has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Luxury industry average of 11% it's much better.

Check out the opportunities and risks within the HK Luxury industry.

In the above chart we have measured Bosideng International Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Bosideng International Holdings here for free.

The Trend Of ROCE

The trends we've noticed at Bosideng International Holdings are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 18%. Basically the business is earning more per dollar of capital invested and in addition to that, 51% more capital is being employed now too. So we're very much inspired by what we're seeing at Bosideng International Holdings thanks to its ability to profitably reinvest capital.

In Conclusion...

To sum it up, Bosideng International Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 661% 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 Bosideng International Holdings can keep these trends up, it could have a bright future ahead.

One more thing to note, we've identified 2 warning signs with Bosideng International Holdings and understanding them should be part of your investment process.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.