The Return Trends At Qeeka Home (Cayman) (HKG:1739) Look Promising

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Qeeka Home (Cayman) (HKG:1739) looks quite promising in regards to its trends of return on capital.

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. Analysts use this formula to calculate it for Qeeka Home (Cayman):

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

0.0072 = CN¥9.8m ÷ (CN¥2.3b - CN¥967m) (Based on the trailing twelve months to June 2021).

Thus, Qeeka Home (Cayman) has an ROCE of 0.7%. In absolute terms, that's a low return and it also under-performs the Consumer Services industry average of 8.2%.

Check out our latest analysis for Qeeka Home (Cayman)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Qeeka Home (Cayman)'s ROCE against it's prior returns. If you're interested in investigating Qeeka Home (Cayman)'s past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Qeeka Home (Cayman) Tell Us?

We're delighted to see that Qeeka Home (Cayman) is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 0.7% which is a sight for sore eyes. In addition to that, Qeeka Home (Cayman) is employing 190% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

One more thing to note, Qeeka Home (Cayman) has decreased current liabilities to 42% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see. Nevertheless, there are some potential risks the company is bearing with current liabilities that high, so just keep that in mind.

The Bottom Line

In summary, it's great to see that Qeeka Home (Cayman) has managed to break into profitability and is continuing to reinvest in its business. Although the company may be facing some issues elsewhere since the stock has plunged 73% in the last three years. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

On a final note, we've found 2 warning signs for Qeeka Home (Cayman) that we think you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.