China Pioneer Pharma Holdings (HKG:1345) Has More To Do To Multiply In Value Going Forward

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at China Pioneer Pharma Holdings (HKG:1345) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

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 China Pioneer Pharma Holdings, this is the formula:

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

0.19 = CN¥187m ÷ (CN¥1.3b - CN¥348m) (Based on the trailing twelve months to December 2021).

Therefore, China Pioneer Pharma Holdings has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 11% generated by the Healthcare industry.

See our latest analysis for China Pioneer Pharma Holdings

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 China Pioneer Pharma Holdings' past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From China Pioneer Pharma Holdings' ROCE Trend?

Things have been pretty stable at China Pioneer Pharma Holdings, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if China Pioneer Pharma Holdings doesn't end up being a multi-bagger in a few years time.

The Bottom Line On China Pioneer Pharma Holdings' ROCE

In summary, China Pioneer Pharma Holdings isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Although the market must be expecting these trends to improve because the stock has gained 49% over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

One final note, you should learn about the 2 warning signs we've spotted with China Pioneer Pharma Holdings (including 1 which is a bit unpleasant) .

While China Pioneer Pharma 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. 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.