Hung Hing Printing Group (HKG:450) Will Be Hoping To Turn Its Returns On Capital Around

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Hung Hing Printing Group (HKG:450), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Hung Hing Printing Group:

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

0.0088 = HK$31m ÷ (HK$4.1b - HK$578m) (Based on the trailing twelve months to December 2020).

Therefore, Hung Hing Printing Group has an ROCE of 0.9%. Ultimately, that's a low return and it under-performs the Packaging industry average of 8.1%.

See our latest analysis for Hung Hing Printing Group

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Hung Hing Printing Group has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Hung Hing Printing Group's ROCE Trend?

In terms of Hung Hing Printing Group's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 0.9% from 2.3% five years ago. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

Our Take On Hung Hing Printing Group's ROCE

We're a bit apprehensive about Hung Hing Printing Group because despite more capital being deployed in the business, returns on that capital and sales have both fallen. Since the stock has skyrocketed 107% over the last five years, it looks like investors have high expectations of the stock. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

If you want to know some of the risks facing Hung Hing Printing Group we've found 3 warning signs (1 can't be ignored!) that you should be aware of before investing here.

While Hung Hing Printing Group 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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