Okura Holdings (HKG:1655) Has More To Do To Multiply In Value Going Forward

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. In light of that, when we looked at Okura Holdings (HKG:1655) and its ROCE trend, we weren't exactly thrilled.

What Is 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. The formula for this calculation on Okura Holdings is:

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

0.074 = JP¥1.1b ÷ (JP¥18b - JP¥3.3b) (Based on the trailing twelve months to June 2024).

So, Okura Holdings has an ROCE of 7.4%. On its own that's a low return on capital but it's in line with the industry's average returns of 7.0%.

See our latest analysis for Okura Holdings

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

The Trend Of ROCE

There hasn't been much to report for Okura Holdings' returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Okura Holdings to be a multi-bagger going forward.

What We Can Learn From Okura Holdings' ROCE

In a nutshell, Okura Holdings has been trudging along with the same returns from the same amount of capital over the last five years. And investors may be expecting the fundamentals to get a lot worse because the stock has crashed 84% over the last five years. Therefore based on the analysis done in this article, we don't think Okura Holdings has the makings of a multi-bagger.

Okura Holdings does have some risks though, and we've spotted 3 warning signs for Okura Holdings that you might be interested in.

While Okura 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.