Hyfusin Group Holdings (HKG:8512) Looks To Prolong Its Impressive Returns

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So, when we ran our eye over Hyfusin Group Holdings' (HKG:8512) trend of ROCE, we really liked what we saw.

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. To calculate this metric for Hyfusin Group Holdings, this is the formula:

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

0.22 = HK$97m ÷ (HK$501m - HK$69m) (Based on the trailing twelve months to March 2023).

Therefore, Hyfusin Group Holdings has an ROCE of 22%. That's a fantastic return and not only that, it outpaces the average of 2.1% earned by companies in a similar industry.

Check out our latest analysis for Hyfusin Group Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Hyfusin Group Holdings' ROCE against it's prior returns. If you'd like to look at how Hyfusin Group Holdings has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Hyfusin Group Holdings Tell Us?

It's hard not to be impressed by Hyfusin Group Holdings' returns on capital. The company has employed 969% more capital in the last five years, and the returns on that capital have remained stable at 22%. Now considering ROCE is an attractive 22%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Hyfusin Group Holdings can keep this up, we'd be very optimistic about its future.

On a side note, Hyfusin Group Holdings has done well to reduce current liabilities to 14% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Bottom Line

In summary, we're delighted to see that Hyfusin Group Holdings has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. Yet over the last five years the stock has declined 47%, so the decline might provide an opening. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

Like most companies, Hyfusin Group Holdings does come with some risks, and we've found 1 warning sign that you should be aware of.

Hyfusin Group Holdings is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.