DTXS Silk Road Investment Holdings (HKG:620) Is Doing The Right Things To Multiply Its Share Price

There are a few key trends to look for if we want to identify the next multi-bagger. 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. With that in mind, we've noticed some promising trends at DTXS Silk Road Investment Holdings (HKG:620) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

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. The formula for this calculation on DTXS Silk Road Investment Holdings is:

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

0.0076 = HK$13m ÷ (HK$2.9b - HK$1.2b) (Based on the trailing twelve months to June 2021).

Therefore, DTXS Silk Road Investment Holdings has an ROCE of 0.8%. Ultimately, that's a low return and it under-performs the Retail Distributors industry average of 6.0%.

See our latest analysis for DTXS Silk Road Investment Holdings

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

So How Is DTXS Silk Road Investment Holdings' ROCE Trending?

DTXS Silk Road Investment Holdings has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 0.8% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, DTXS Silk Road Investment Holdings is utilizing 182% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 42% of its operations, which isn't ideal. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

The Bottom Line

To the delight of most shareholders, DTXS Silk Road Investment Holdings has now broken into profitability. Astute investors may have an opportunity here because the stock has declined 33% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to know some of the risks facing DTXS Silk Road Investment Holdings we've found 3 warning signs (2 are potentially serious!) that you should be aware of before investing here.

While DTXS Silk Road Investment 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.