GET Holdings (HKG:8100) Will Be Looking To Turn Around Its Returns

Published
August 16, 2022
SEHK:8100
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When researching a stock for investment, what can tell us that the company is in decline? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. And from a first read, things don't look too good at GET Holdings (HKG:8100), so let's see why.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on GET Holdings is:

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

0.022 = HK$5.8m ÷ (HK$309m - HK$42m) (Based on the trailing twelve months to June 2022).

Thus, GET Holdings has an ROCE of 2.2%. In absolute terms, that's a low return and it also under-performs the Software industry average of 5.0%.

Check out our latest analysis for GET Holdings

roce
SEHK:8100 Return on Capital Employed August 16th 2022

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 want to delve into the historical earnings, revenue and cash flow of GET Holdings, check out these free graphs here.

What Can We Tell From GET Holdings' ROCE Trend?

In terms of GET Holdings' historical ROCE trend, it isn't fantastic. Unfortunately, returns have declined substantially over the last five years to the 2.2% we see today. What's equally concerning is that the amount of capital deployed in the business has shrunk by 78% over that same period. The fact that both are shrinking is an indication that the business is going through some tough times. If these underlying trends continue, we wouldn't be too optimistic going forward.

The Bottom Line On GET Holdings' ROCE

In short, lower returns and decreasing amounts capital employed in the business doesn't fill us with confidence. Investors haven't taken kindly to these developments, since the stock has declined 45% from where it was five years ago. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

Like most companies, GET Holdings does come with some risks, and we've found 1 warning sign that you should be aware of.

While GET Holdings may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

Valuation is complex, but we're helping make it simple.

Find out whether GET Holdings is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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