Is Oriental Press Group (HKG:18) A Future Multi-bagger?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. So on that note, Oriental Press Group (HKG:18) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Oriental Press Group:

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

0.02 = HK$38m ÷ (HK$2.0b - HK$119m) (Based on the trailing twelve months to September 2020).

Thus, Oriental Press Group has an ROCE of 2.0%. Ultimately, that's a low return and it under-performs the Media industry average of 12%.

View our latest analysis for Oriental Press Group

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

What Does the ROCE Trend For Oriental Press Group Tell Us?

It's nice to see that ROCE is headed in the right direction, even if it is still relatively low. We found that the returns on capital employed over the last five years have risen by 108%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Speaking of capital employed, the company is actually utilizing 35% less than it was five years ago, which can be indicative of a business that's improving its efficiency. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

The Key Takeaway

From what we've seen above, Oriental Press Group has managed to increase it's returns on capital all the while reducing it's capital base. Since the stock has only returned 15% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

If you'd like to know more about Oriental Press Group, we've spotted 4 warning signs, and 1 of them is potentially serious.

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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