Hilong Holding (HKG:1623) Has Some Way To Go To Become A Multi-Bagger

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Having said that, from a first glance at Hilong Holding (HKG:1623) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 Hilong Holding:

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

0.071 = CN¥426m ÷ (CN¥7.8b - CN¥1.8b) (Based on the trailing twelve months to December 2022).

Therefore, Hilong Holding has an ROCE of 7.1%. In absolute terms, that's a low return but it's around the Energy Services industry average of 6.4%.

Check out our latest analysis for Hilong Holding

Historical performance is a great place to start when researching a stock so above you can see the gauge for Hilong Holding's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Hilong Holding, check out these free graphs here.

How Are Returns Trending?

Over the past five years, Hilong Holding's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Hilong Holding in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

In Conclusion...

We can conclude that in regards to Hilong Holding's returns on capital employed and the trends, there isn't much change to report on. It seems that investors have little hope of these trends getting any better and that may have partly contributed to the stock collapsing 79% in the last five years. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

Hilong Holding does come with some risks though, we found 4 warning signs in our investment analysis, and 2 of those make us uncomfortable...

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.