HengTen Networks Group (HKG:136) Might Have The Makings Of A Multi-Bagger

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at HengTen Networks Group (HKG:136) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for HengTen Networks Group:

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

0.0064 = CN¥7.6m ÷ (CN¥1.3b - CN¥78m) (Based on the trailing twelve months to December 2020).

Thus, HengTen Networks Group has an ROCE of 0.6%. In absolute terms, that's a low return and it also under-performs the Online Retail industry average of 4.3%.

Check out our latest analysis for HengTen Networks Group

Above you can see how the current ROCE for HengTen Networks Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for HengTen Networks Group.

So How Is HengTen Networks Group's ROCE Trending?

We're delighted to see that HengTen Networks Group is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 0.6% on its capital. Not only that, but the company is utilizing 79% more capital than before, but that's to be expected from a company 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 HengTen Networks Group's ROCE

In summary, it's great to see that HengTen Networks Group has managed to break into profitability and is continuing to reinvest in its business. Considering the stock has delivered 30% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

On a final note, we've found 3 warning signs for HengTen Networks Group that we think you should be aware of.

While HengTen Networks 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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