Returns At A8 New Media Group (HKG:800) Are On The Way Up

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. With that in mind, we've noticed some promising trends at A8 New Media Group (HKG:800) so let's look a bit deeper.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for A8 New Media Group:

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

0.021 = CN¥34m ÷ (CN¥1.7b - CN¥81m) (Based on the trailing twelve months to June 2021).

Thus, A8 New Media Group has an ROCE of 2.1%. Ultimately, that's a low return and it under-performs the Entertainment industry average of 13%.

See our latest analysis for A8 New Media Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for A8 New Media Group's ROCE against it's prior returns. If you're interested in investigating A8 New Media Group's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From A8 New Media Group's ROCE Trend?

The fact that A8 New Media Group is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 2.1% which is a sight for sore eyes. In addition to that, A8 New Media Group is employing 41% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line On A8 New Media Group's ROCE

To the delight of most shareholders, A8 New Media Group has now broken into profitability. Astute investors may have an opportunity here because the stock has declined 48% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you want to know some of the risks facing A8 New Media Group we've found 4 warning signs (1 is a bit unpleasant!) that you should be aware of before investing here.

While A8 New Media Group 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.
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