Lvji Technology Holdings (HKG:1745) Will Want To Turn Around Its Return Trends

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. However, after investigating Lvji Technology Holdings (HKG:1745), we don't think it's current trends fit the mold of a multi-bagger.

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. To calculate this metric for Lvji Technology Holdings, this is the formula:

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

0.049 = CN¥31m ÷ (CN¥719m - CN¥91m) (Based on the trailing twelve months to June 2022).

So, Lvji Technology Holdings has an ROCE of 4.9%. In absolute terms, that's a low return, but it's much better than the Software industry average of 3.9%.

View our latest analysis for Lvji Technology Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Lvji Technology Holdings' ROCE against it's prior returns. If you'd like to look at how Lvji Technology 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 Lvji Technology Holdings' ROCE Trending?

In terms of Lvji Technology Holdings' historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 32% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line

In summary, Lvji Technology Holdings is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has declined 58% over the last three years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

One more thing: We've identified 3 warning signs with Lvji Technology Holdings (at least 1 which is a bit concerning) , and understanding these would certainly be useful.

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.