Kinetic Development Group (HKG:1277) Is Aiming To Keep Up Its Impressive Returns

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Ergo, when we looked at the ROCE trends at Kinetic Development Group (HKG:1277), we liked what we saw.

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. To calculate this metric for Kinetic Development Group, this is the formula:

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

0.49 = CN¥3.7b ÷ (CN¥9.5b - CN¥1.8b) (Based on the trailing twelve months to December 2022).

So, Kinetic Development Group has an ROCE of 49%. In absolute terms that's a great return and it's even better than the Oil and Gas industry average of 7.0%.

View our latest analysis for Kinetic Development Group

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Kinetic Development Group's past further, check out this free graph of past earnings, revenue and cash flow.

SWOT Analysis for Kinetic Development Group

What Does the ROCE Trend For Kinetic Development Group Tell Us?

We'd be pretty happy with returns on capital like Kinetic Development Group. The company has consistently earned 49% for the last five years, and the capital employed within the business has risen 434% in that time. Now considering ROCE is an attractive 49%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Kinetic Development Group can keep this up, we'd be very optimistic about its future.

On a side note, Kinetic Development Group has done well to reduce current liabilities to 19% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

In Conclusion...

In summary, we're delighted to see that Kinetic Development Group has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And long term investors would be thrilled with the 138% return they've received over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

On a separate note, we've found 1 warning sign for Kinetic Development Group you'll probably want to know about.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.