Is Anxian Yuan China Holdings (HKG:922) A Future Multi-bagger?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. So on that note, Anxian Yuan China Holdings (HKG:922) looks quite promising in regards to its trends of return on capital.

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. The formula for this calculation on Anxian Yuan China Holdings is:

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

0.094 = HK$104m ÷ (HK$1.3b - HK$147m) (Based on the trailing twelve months to September 2020).

Thus, Anxian Yuan China Holdings has an ROCE of 9.4%. Even though it's in line with the industry average of 9.3%, it's still a low return by itself.

See our latest analysis for Anxian Yuan China Holdings

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

So How Is Anxian Yuan China Holdings' ROCE Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last five years to 9.4%. The amount of capital employed has increased too, by 60%. So we're very much inspired by what we're seeing at Anxian Yuan China Holdings thanks to its ability to profitably reinvest capital.

The Key Takeaway

To sum it up, Anxian Yuan China Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. However the stock is down a substantial 85% in the last five years so there could be other areas of the business hurting its prospects. Still, it's worth doing some further research to see if the trends will continue into the future.

One more thing: We've identified 4 warning signs with Anxian Yuan China Holdings (at least 1 which is a bit unpleasant) , and understanding these would certainly be useful.

While Anxian Yuan China 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.

If you’re looking to trade Anxian Yuan China Holdings, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.