We're Watching These Trends At Boyaa Interactive International (HKG:434)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Boyaa Interactive International (HKG:434) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What is 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. To calculate this metric for Boyaa Interactive International, this is the formula:

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

0.05 = CN¥105m ÷ (CN¥2.4b - CN¥268m) (Based on the trailing twelve months to September 2020).

So, Boyaa Interactive International has an ROCE of 5.0%. In absolute terms, that's a low return and it also under-performs the Entertainment industry average of 14%.

Check out our latest analysis for Boyaa Interactive International

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

What Can We Tell From Boyaa Interactive International's ROCE Trend?

When we looked at the ROCE trend at Boyaa Interactive International, we didn't gain much confidence. To be more specific, ROCE has fallen from 10% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line On Boyaa Interactive International's ROCE

Bringing it all together, while we're somewhat encouraged by Boyaa Interactive International's reinvestment in its own business, we're aware that returns are shrinking. It seems that investors have little hope of these trends getting any better and that may have partly contributed to the stock collapsing 79% in the last five years. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

On a final note, we found 2 warning signs for Boyaa Interactive International (1 is potentially serious) you should be aware of.

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