Returns At SiS Mobile Holdings (HKG:1362) Are On The Way Up

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at SiS Mobile Holdings (HKG:1362) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on SiS Mobile Holdings is:

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

0.13 = HK$20m ÷ (HK$209m - HK$51m) (Based on the trailing twelve months to June 2023).

Therefore, SiS Mobile Holdings has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 6.5% generated by the Electronic industry.

View our latest analysis for SiS Mobile Holdings

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're interested in investigating SiS Mobile Holdings' past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From SiS Mobile Holdings' ROCE Trend?

SiS Mobile Holdings is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 13%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 53%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 24%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

The Bottom Line

To sum it up, SiS Mobile Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And since the stock has dived 73% over the last five years, there may be other factors affecting the company's prospects. Still, it's worth doing some further research to see if the trends will continue into the future.

SiS Mobile Holdings does have some risks though, and we've spotted 3 warning signs for SiS Mobile Holdings that you might be interested in.

While SiS Mobile Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.