Stock Analysis

Will the Promising Trends At Fujikon Industrial Holdings (HKG:927) Continue?

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SEHK:927
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To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Fujikon Industrial Holdings (HKG:927) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

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 Fujikon Industrial Holdings:

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

0.013 = HK$9.3m ÷ (HK$1.0b - HK$296m) (Based on the trailing twelve months to September 2020).

Therefore, Fujikon Industrial Holdings has an ROCE of 1.3%. In absolute terms, that's a low return and it also under-performs the Consumer Durables industry average of 16%.

Check out our latest analysis for Fujikon Industrial Holdings

roce
SEHK:927 Return on Capital Employed February 5th 2021

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

What Does the ROCE Trend For Fujikon Industrial Holdings Tell Us?

While there are companies with higher returns on capital out there, we still find the trend at Fujikon Industrial Holdings promising. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 463% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line On Fujikon Industrial Holdings' ROCE

In summary, we're delighted to see that Fujikon Industrial Holdings has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has only returned 33% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

Fujikon Industrial Holdings does have some risks though, and we've spotted 2 warning signs for Fujikon Industrial Holdings that you might be interested in.

While Fujikon Industrial 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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