Returns Are Gaining Momentum At Palasino Holdings (HKG:2536)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. With that in mind, we've noticed some promising trends at Palasino Holdings (HKG:2536) so let's look a bit deeper.

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What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Palasino Holdings:

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

0.041 = HK$28m ÷ (HK$761m - HK$91m) (Based on the trailing twelve months to March 2025).

So, Palasino Holdings has an ROCE of 4.1%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 7.3%.

See our latest analysis for Palasino Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Palasino Holdings' ROCE against it's prior returns. If you'd like to look at how Palasino Holdings has performed in the past in other metrics, you can view this free graph of Palasino Holdings' past earnings, revenue and cash flow.

What Can We Tell From Palasino Holdings' ROCE Trend?

The fact that Palasino Holdings is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses four years ago, but now it's earning 4.1% which is a sight for sore eyes. Not only that, but the company is utilizing 44% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

What We Can Learn From Palasino Holdings' ROCE

In summary, it's great to see that Palasino Holdings has managed to break into profitability and is continuing to reinvest in its business. Given the stock has declined 62% in the last year, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you'd like to know about the risks facing Palasino Holdings, we've discovered 1 warning sign that you should be aware of.

While Palasino 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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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.