Has Southeast Asia Properties & Finance (HKG:252) Got What It Takes To Become A Multi-Bagger?

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think Southeast Asia Properties & Finance (HKG:252) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding 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. The formula for this calculation on Southeast Asia Properties & Finance is:

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

0.018 = HK$22m ÷ (HK$1.5b - HK$336m) (Based on the trailing twelve months to September 2020).

Thus, Southeast Asia Properties & Finance has an ROCE of 1.8%. Ultimately, that's a low return and it under-performs the Packaging industry average of 11%.

See our latest analysis for Southeast Asia Properties & Finance

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

So How Is Southeast Asia Properties & Finance's ROCE Trending?

There hasn't been much to report for Southeast Asia Properties & Finance's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Southeast Asia Properties & Finance doesn't end up being a multi-bagger in a few years time.

The Key Takeaway

We can conclude that in regards to Southeast Asia Properties & Finance's returns on capital employed and the trends, there isn't much change to report on. And with the stock having returned a mere 14% 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.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Southeast Asia Properties & Finance (of which 1 doesn't sit too well with us!) that you should know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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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