Investors Will Want Bauhaus International (Holdings)'s (HKG:483) Growth In ROCE To Persist

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Bauhaus International (Holdings)'s (HKG:483) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Bauhaus International (Holdings):

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

0.16 = HK$28m ÷ (HK$207m - HK$33m) (Based on the trailing twelve months to March 2023).

Thus, Bauhaus International (Holdings) has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Luxury industry average of 11% it's much better.

Check out our latest analysis for Bauhaus International (Holdings)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Bauhaus International (Holdings)'s ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Bauhaus International (Holdings), check out these free graphs here.

SWOT Analysis for Bauhaus International (Holdings)

The Trend Of ROCE

Bauhaus International (Holdings) has not disappointed in regards to ROCE growth. We found that the returns on capital employed over the last five years have risen by 148%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Speaking of capital employed, the company is actually utilizing 79% less than it was five years ago, which can be indicative of a business that's improving its efficiency. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

The Key Takeaway

In the end, Bauhaus International (Holdings) has proven it's capital allocation skills are good with those higher returns from less amount of capital. Since the stock has returned a staggering 182% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a separate note, we've found 3 warning signs for Bauhaus International (Holdings) you'll probably want to know about.

While Bauhaus 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.