We Like These Underlying Return On Capital Trends At Hi Sun Technology (China) (HKG:818)

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 Hi Sun Technology (China) (HKG:818) so let's look a bit deeper.

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 Hi Sun Technology (China):

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

0.05 = HK$363m ÷ (HK$9.7b - HK$2.5b) (Based on the trailing twelve months to December 2020).

Thus, Hi Sun Technology (China) has an ROCE of 5.0%. In absolute terms, that's a low return and it also under-performs the IT industry average of 8.0%.

See our latest analysis for Hi Sun Technology (China)

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

How Are Returns Trending?

We're delighted to see that Hi Sun Technology (China) is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 5.0% on its capital. And unsurprisingly, like most companies trying to break into the black, Hi Sun Technology (China) is utilizing 116% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

In Conclusion...

Overall, Hi Sun Technology (China) gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Since the stock has only returned 19% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

If you'd like to know more about Hi Sun Technology (China), we've spotted 2 warning signs, and 1 of them is a bit unpleasant.

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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