Will the Promising Trends At Ming Fai International Holdings (HKG:3828) Continue?

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Ming Fai International Holdings (HKG:3828) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

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. To calculate this metric for Ming Fai International Holdings, this is the formula:

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

0.13 = HK$147m ÷ (HK$1.7b - HK$575m) (Based on the trailing twelve months to June 2020).

Thus, Ming Fai International Holdings has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 10% generated by the Personal Products industry.

Check out our latest analysis for Ming Fai International Holdings

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

The Trend Of ROCE

Ming Fai International Holdings' ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 100% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

In Conclusion...

To bring it all together, Ming Fai International Holdings has done well to increase the returns it's generating from its capital employed. Since the stock has returned a solid 66% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Ming Fai International Holdings does have some risks though, and we've spotted 2 warning signs for Ming Fai International Holdings that you might be interested in.

While Ming Fai 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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