We're Watching These Trends At Greatview Aseptic Packaging (HKG:468)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Although, when we looked at Greatview Aseptic Packaging (HKG:468), it didn't seem to tick all of these boxes.

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

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. To calculate this metric for Greatview Aseptic Packaging, this is the formula:

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

0.16 = CN¥407m ÷ (CN¥3.7b - CN¥1.1b) (Based on the trailing twelve months to June 2020).

Therefore, Greatview Aseptic Packaging has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 9.5% generated by the Packaging industry.

See our latest analysis for Greatview Aseptic Packaging

Above you can see how the current ROCE for Greatview Aseptic Packaging compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Greatview Aseptic Packaging Tell Us?

There hasn't been much to report for Greatview Aseptic Packaging's returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So unless we see a substantial change at Greatview Aseptic Packaging in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. On top of that you'll notice that Greatview Aseptic Packaging has been paying out a large portion (88%) of earnings in the form of dividends to shareholders. Most shareholders probably know this and own the stock for its dividend.

The Key Takeaway

We can conclude that in regards to Greatview Aseptic Packaging's returns on capital employed and the trends, there isn't much change to report on. Although the market must be expecting these trends to improve because the stock has gained 61% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Greatview Aseptic Packaging does have some risks though, and we've spotted 1 warning sign for Greatview Aseptic Packaging that you might be interested in.

While Greatview Aseptic Packaging 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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