Investors Will Want Oriental Enterprise Holdings' (HKG:18) Growth In ROCE To Persist

What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Oriental Enterprise Holdings (HKG:18) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for Oriental Enterprise Holdings, this is the formula:

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

0.072 = HK$130m ÷ (HK$1.9b - HK$86m) (Based on the trailing twelve months to March 2023).

So, Oriental Enterprise Holdings has an ROCE of 7.2%. Ultimately, that's a low return and it under-performs the Media industry average of 11%.

View our latest analysis for Oriental Enterprise Holdings

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

The Trend Of ROCE

You'd find it hard not to be impressed with the ROCE trend at Oriental Enterprise Holdings. The data shows that returns on capital have increased by 49% over the trailing five years. The company is now earning HK$0.07 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 29% less than it was five years ago, which can be indicative of a business that's improving its efficiency. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

Our Take On Oriental Enterprise Holdings' ROCE

In a nutshell, we're pleased to see that Oriental Enterprise Holdings has been able to generate higher returns from less capital. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a separate note, we've found 1 warning sign for Oriental Enterprise Holdings you'll probably want to know about.

While Oriental Enterprise Holdings may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.