Sunlight (1977) Holdings (HKG:8451) Has Some Way To Go To Become A Multi-Bagger

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Sunlight (1977) Holdings (HKG:8451), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Sunlight (1977) Holdings:

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

0.042 = S$792k ÷ (S$20m - S$1.6m) (Based on the trailing twelve months to September 2023).

Thus, Sunlight (1977) Holdings has an ROCE of 4.2%. In absolute terms, that's a low return and it also under-performs the Retail Distributors industry average of 7.5%.

View our latest analysis for Sunlight (1977) Holdings

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'd like to look at how Sunlight (1977) Holdings has performed in the past in other metrics, you can view this free graph of Sunlight (1977) Holdings' past earnings, revenue and cash flow.

What Can We Tell From Sunlight (1977) Holdings' ROCE Trend?

There hasn't been much to report for Sunlight (1977) Holdings' returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at Sunlight (1977) Holdings in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

What We Can Learn From Sunlight (1977) Holdings' ROCE

In a nutshell, Sunlight (1977) Holdings has been trudging along with the same returns from the same amount of capital over the last five years. Since the stock has declined 47% over the last five years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

On a final note, we found 2 warning signs for Sunlight (1977) Holdings (1 can't be ignored) you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.