Why We Like The Returns At East Buy Holding (HKG:1797)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, the ROCE of East Buy Holding (HKG:1797) looks great, so lets see what the trend can tell us.

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

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 East Buy Holding:

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

0.26 = CN¥609m ÷ (CN¥3.2b - CN¥863m) (Based on the trailing twelve months to November 2022).

Thus, East Buy Holding has an ROCE of 26%. In absolute terms that's a great return and it's even better than the Consumer Services industry average of 8.4%.

Check out our latest analysis for East Buy Holding

Above you can see how the current ROCE for East Buy Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering East Buy Holding here for free.

So How Is East Buy Holding's ROCE Trending?

We like the trends that we're seeing from East Buy Holding. The data shows that returns on capital have increased substantially over the last five years to 26%. The amount of capital employed has increased too, by 174%. So we're very much inspired by what we're seeing at East Buy Holding thanks to its ability to profitably reinvest capital.

The Bottom Line

In summary, it's great to see that East Buy Holding can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And since the stock has fallen 21% over the last three years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for East Buy Holding (of which 1 is significant!) that you should know about.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.