Is Mobicon Group (HKG:1213) Struggling?

Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. This indicates the company is producing less profit from its investments and its total assets are decreasing. So after glancing at the trends within Mobicon Group (HKG:1213), we weren't too hopeful.

What is 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. Analysts use this formula to calculate it for Mobicon Group:

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

0.086 = HK$14m ÷ (HK$313m - HK$151m) (Based on the trailing twelve months to September 2020).

Thus, Mobicon Group has an ROCE of 8.6%. In absolute terms, that's a low return but it's around the Electronic industry average of 7.7%.

See our latest analysis for Mobicon Group

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

What The Trend Of ROCE Can Tell Us

In terms of Mobicon Group's historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 12%, however they're now substantially lower than that as we saw above. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. If these trends continue, we wouldn't expect Mobicon Group to turn into a multi-bagger.

On a side note, Mobicon Group's current liabilities are still rather high at 48% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From Mobicon Group's ROCE

In summary, it's unfortunate that Mobicon Group is generating lower returns from the same amount of capital. This could explain why the stock has sunk a total of 71% in the last five years. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

One more thing to note, we've identified 2 warning signs with Mobicon Group and understanding these should be part of your investment process.

While Mobicon Group 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.

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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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