We Like These Underlying Trends At Weimob (HKG:2013)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. With that in mind, we've noticed some promising trends at Weimob (HKG:2013) so let's look a bit deeper.

Understanding 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. Analysts use this formula to calculate it for Weimob:

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

0.0072 = CN¥23m ÷ (CN¥4.8b - CN¥1.6b) (Based on the trailing twelve months to June 2020).

So, Weimob has an ROCE of 0.7%. In absolute terms, that's a low return and it also under-performs the Software industry average of 3.4%.

See our latest analysis for Weimob

In the above chart we have measured Weimob's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Weimob.

How Are Returns Trending?

The fact that Weimob is now generating some pre-tax profits from its prior investments is very encouraging. About two years ago the company was generating losses but things have turned around because it's now earning 0.7% on its capital. And unsurprisingly, like most companies trying to break into the black, Weimob is utilizing 521% more capital than it was two 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.

One more thing to note, Weimob has decreased current liabilities to 34% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Bottom Line

To the delight of most shareholders, Weimob has now broken into profitability. And a remarkable 246% total return over the last year tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

While Weimob looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether 2013 is currently trading for a fair price.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. 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.
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