Is Health and Happiness (H&H) International Holdings (HKG:1112) Likely To Turn Things Around?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Health and Happiness (H&H) International Holdings (HKG:1112) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding Return On Capital Employed (ROCE)

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 Health and Happiness (H&H) International Holdings, this is the formula:

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

0.13 = CN¥1.8b ÷ (CN¥17b - CN¥3.7b) (Based on the trailing twelve months to June 2020).

Thus, Health and Happiness (H&H) International Holdings has an ROCE of 13%. That's a relatively normal return on capital, and it's around the 14% generated by the Food industry.

View our latest analysis for Health and Happiness (H&H) International Holdings

Above you can see how the current ROCE for Health and Happiness (H&H) International Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Health and Happiness (H&H) International Holdings Tell Us?

While the returns on capital are good, they haven't moved much. The company has employed 146% more capital in the last five years, and the returns on that capital have remained stable at 13%. Since 13% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

Our Take On Health and Happiness (H&H) International Holdings' ROCE

The main thing to remember is that Health and Happiness (H&H) International Holdings has proven its ability to continually reinvest at respectable rates of return. On top of that, the stock has rewarded shareholders with a remarkable 119% return to those who've held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Like most companies, Health and Happiness (H&H) International Holdings does come with some risks, and we've found 2 warning signs that you should be aware of.

While Health and Happiness (H&H) International 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. 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.
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