GET Holdings (HKG:8100) Might Have The Makings Of A Multi-Bagger

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. So on that note, GET Holdings (HKG:8100) looks quite promising in regards to its trends of return on capital.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for GET Holdings, this is the formula:

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

0.057 = HK$15m ÷ (HK$309m - HK$42m) (Based on the trailing twelve months to September 2022).

So, GET Holdings has an ROCE of 5.7%. In absolute terms, that's a low return, but it's much better than the Software industry average of 4.2%.

Our analysis indicates that 8100 is potentially undervalued!

Historical performance is a great place to start when researching a stock so above you can see the gauge for GET Holdings' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of GET Holdings, check out these free graphs here.

What Does the ROCE Trend For GET Holdings Tell Us?

You'd find it hard not to be impressed with the ROCE trend at GET Holdings. The figures show that over the last five years, returns on capital have grown by 160%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Speaking of capital employed, the company is actually utilizing 78% less than it was five years ago, which can be indicative of a business that's improving its efficiency. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

The Bottom Line

From what we've seen above, GET Holdings has managed to increase it's returns on capital all the while reducing it's capital base. And since the stock has fallen 37% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you want to continue researching GET Holdings, you might be interested to know about the 1 warning sign that our analysis has discovered.

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. 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.