Tianli Education International Holdings (HKG:1773) Might Have The Makings Of A Multi-Bagger

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Tianli Education International Holdings (HKG:1773) looks quite promising in regards to its trends of return on capital.

What is 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. The formula for this calculation on Tianli Education International Holdings is:

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

0.075 = CN¥387m ÷ (CN¥7.4b - CN¥2.3b) (Based on the trailing twelve months to December 2020).

So, Tianli Education International Holdings has an ROCE of 7.5%. In absolute terms, that's a low return but it's around the Consumer Services industry average of 7.8%.

Check out our latest analysis for Tianli Education International Holdings

Above you can see how the current ROCE for Tianli Education International Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Tianli Education International Holdings.

What Can We Tell From Tianli Education International Holdings' ROCE Trend?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 7.5%. The amount of capital employed has increased too, by 637%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

One more thing to note, Tianli Education International Holdings has decreased current liabilities to 30% 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.

The Bottom Line On Tianli Education International Holdings' ROCE

To sum it up, Tianli Education International Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last year, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you want to continue researching Tianli Education International Holdings, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Tianli Education 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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