Mobicon Group (HKG:1213) Is Doing The Right Things To Multiply Its Share Price

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Mobicon Group's (HKG:1213) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from 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)

0.059 = HK$10m ÷ (HK$274m - HK$99m) (Based on the trailing twelve months to March 2024).

So, Mobicon Group has an ROCE of 5.9%. On its own, that's a low figure but it's around the 6.9% average generated by the Electronic industry.

Check out 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'd like to look at how Mobicon Group has performed in the past in other metrics, you can view this free graph of Mobicon Group's past earnings, revenue and cash flow.

So How Is Mobicon Group's ROCE Trending?

Mobicon Group has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 115% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

On a related note, the company's ratio of current liabilities to total assets has decreased to 36%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

Our Take On Mobicon Group's ROCE

In summary, we're delighted to see that Mobicon Group has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And since the stock has dived 79% over the last five years, there may be other factors affecting the company's prospects. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

On a final note, we found 2 warning signs for Mobicon Group (1 is potentially serious) you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com