Returns At Okura Holdings (HKG:1655) Appear To Be Weighed Down

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think Okura Holdings (HKG:1655) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Okura Holdings:

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

0.033 = JP¥500m ÷ (JP¥18b - JP¥3.1b) (Based on the trailing twelve months to December 2023).

So, Okura Holdings has an ROCE of 3.3%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 6.9%.

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'd like to look at how Okura Holdings has performed in the past in other metrics, you can view this free graph of Okura Holdings' past earnings, revenue and cash flow.

What Can We Tell From Okura Holdings' ROCE Trend?

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. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Okura Holdings doesn't end up being a multi-bagger in a few years time.

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. It seems that investors have little hope of these trends getting any better and that may have partly contributed to the stock collapsing 85% in 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, we noticed 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

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.