King Fook Holdings (HKG:280) Might Have The Makings Of A Multi-Bagger

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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, King Fook Holdings (HKG:280) looks quite promising in regards to its trends of return on capital.

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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. The formula for this calculation on King Fook Holdings is:

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

0.086 = HK$68m ÷ (HK$958m - HK$170m) (Based on the trailing twelve months to September 2024).

So, King Fook Holdings has an ROCE of 8.6%. Even though it's in line with the industry average of 8.9%, it's still a low return by itself.

Check out our latest analysis for King Fook Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for King Fook Holdings' ROCE against it's prior returns. If you'd like to look at how King Fook Holdings has performed in the past in other metrics, you can view this free graph of King Fook Holdings' past earnings, revenue and cash flow.

How Are Returns Trending?

King Fook Holdings has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 582% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

Our Take On King Fook Holdings' ROCE

To bring it all together, King Fook Holdings has done well to increase the returns it's generating from its capital employed. And a remarkable 119% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a final note, we've found 1 warning sign for King Fook Holdings that we think you should be aware of.

While King Fook 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.

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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.