Stock Analysis

We Like These Underlying Return On Capital Trends At China-Hongkong Photo Products Holdings (HKG:1123)

SEHK:1123
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If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. With that in mind, we've noticed some promising trends at China-Hongkong Photo Products Holdings (HKG:1123) so let's look a bit deeper.

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. Analysts use this formula to calculate it for China-Hongkong Photo Products Holdings:

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

0.012 = HK$8.7m ÷ (HK$888m - HK$171m) (Based on the trailing twelve months to March 2022).

Thus, China-Hongkong Photo Products Holdings has an ROCE of 1.2%. Ultimately, that's a low return and it under-performs the Retail Distributors industry average of 9.4%.

View our latest analysis for China-Hongkong Photo Products Holdings

roce
SEHK:1123 Return on Capital Employed September 23rd 2022

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of China-Hongkong Photo Products Holdings, check out these free graphs here.

The Trend Of ROCE

Shareholders will be relieved that China-Hongkong Photo Products Holdings has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 1.2% on its capital. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. Because in the end, a business can only get so efficient.

Our Take On China-Hongkong Photo Products Holdings' ROCE

As discussed above, China-Hongkong Photo Products Holdings appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. However the stock is down a substantial 71% in the last five years so there could be other areas of the business hurting its prospects. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

One more thing, we've spotted 4 warning signs facing China-Hongkong Photo Products Holdings that you might find interesting.

While China-Hongkong Photo Products Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Valuation is complex, but we're helping make it simple.

Find out whether China-Hongkong Photo Products Holdings is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.