San Miguel Brewery Hong Kong (HKG:236) Might Have The Makings Of A Multi-Bagger

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Speaking of which, we noticed some great changes in San Miguel Brewery Hong Kong's (HKG:236) returns on capital, so let's have a look.

What Is 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. The formula for this calculation on San Miguel Brewery Hong Kong is:

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

0.041 = HK$25m ÷ (HK$719m - HK$114m) (Based on the trailing twelve months to December 2022).

So, San Miguel Brewery Hong Kong has an ROCE of 4.1%. In absolute terms, that's a low return and it also under-performs the Beverage industry average of 11%.

View our latest analysis for San Miguel Brewery Hong Kong

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

What The Trend Of ROCE Can Tell Us

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 52% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line

To bring it all together, San Miguel Brewery Hong Kong has done well to increase the returns it's generating from its capital employed. Astute investors may have an opportunity here because the stock has declined 44% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a final note, we've found 2 warning signs for San Miguel Brewery Hong Kong that we think you should be aware of.

While San Miguel Brewery Hong Kong 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.

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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.