Tingyi (Cayman Islands) Holding (HKG:322) Has Some Way To Go To Become A Multi-Bagger

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Tingyi (Cayman Islands) Holding (HKG:322) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Tingyi (Cayman Islands) Holding, this is the formula:

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

0.13 = CN¥3.6b ÷ (CN¥59b - CN¥32b) (Based on the trailing twelve months to June 2023).

So, Tingyi (Cayman Islands) Holding has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 9.3% generated by the Food industry.

Check out our latest analysis for Tingyi (Cayman Islands) Holding

Above you can see how the current ROCE for Tingyi (Cayman Islands) Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Tingyi (Cayman Islands) Holding for free.

What Can We Tell From Tingyi (Cayman Islands) Holding's ROCE Trend?

Over the past five years, Tingyi (Cayman Islands) 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 Tingyi (Cayman Islands) Holding in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. That probably explains why Tingyi (Cayman Islands) Holding has been paying out 99% of its earnings as dividends to shareholders. Most shareholders probably know this and own the stock for its dividend.

On a separate but related note, it's important to know that Tingyi (Cayman Islands) Holding has a current liabilities to total assets ratio of 55%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On Tingyi (Cayman Islands) Holding's ROCE

We can conclude that in regards to Tingyi (Cayman Islands) Holding's returns on capital employed and the trends, there isn't much change to report on. And with the stock having returned a mere 8.3% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you want to continue researching Tingyi (Cayman Islands) Holding, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Tingyi (Cayman Islands) Holding 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.