Sinofert Holdings (HKG:297) Shareholders Will Want The ROCE Trajectory To Continue

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. So when we looked at Sinofert Holdings (HKG:297) and its trend of ROCE, we really liked what we saw.

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. The formula for this calculation on Sinofert Holdings is:

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

0.093 = CN¥1.1b ÷ (CN¥20b - CN¥7.8b) (Based on the trailing twelve months to June 2023).

Thus, Sinofert Holdings has an ROCE of 9.3%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.3%.

View our latest analysis for Sinofert Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Sinofert Holdings' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Sinofert Holdings, check out these free graphs here.

The Trend Of ROCE

We're delighted to see that Sinofert Holdings is reaping rewards from its investments and has now broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 9.3% on its capital. While returns have increased, the amount of capital employed by Sinofert Holdings has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

Our Take On Sinofert Holdings' ROCE

In summary, we're delighted to see that Sinofert Holdings has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has only returned 30% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

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

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.