Should We Be Excited About The Trends Of Returns At IntelliCentrics Global Holdings (HKG:6819)?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think IntelliCentrics Global Holdings (HKG:6819) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for IntelliCentrics Global Holdings:

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

0.12 = US$6.2m ÷ (US$97m - US$47m) (Based on the trailing twelve months to June 2020).

So, IntelliCentrics Global Holdings has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Healthcare Services industry average of 9.9% it's much better.

See our latest analysis for IntelliCentrics Global Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for IntelliCentrics Global Holdings' ROCE against it's prior returns. If you're interested in investigating IntelliCentrics Global Holdings' past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

On the surface, the trend of ROCE at IntelliCentrics Global Holdings doesn't inspire confidence. Over the last four years, returns on capital have decreased to 12% from 36% four years ago. However it looks like IntelliCentrics Global Holdings might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Another thing to note, IntelliCentrics Global Holdings has a high ratio of current liabilities to total assets of 49%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On IntelliCentrics Global Holdings' ROCE

Bringing it all together, while we're somewhat encouraged by IntelliCentrics Global Holdings' reinvestment in its own business, we're aware that returns are shrinking. Although the market must be expecting these trends to improve because the stock has gained 23% over the last year. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

IntelliCentrics Global Holdings does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those are a bit unpleasant...

While IntelliCentrics Global Holdings 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. 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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