SiS Mobile Holdings (HKG:1362) Is Very Good At Capital Allocation

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. And in light of that, the trends we're seeing at SiS Mobile Holdings' (HKG:1362) look very promising so lets take a look.

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. Analysts use this formula to calculate it for SiS Mobile Holdings:

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

0.28 = HK$40m ÷ (HK$195m - HK$56m) (Based on the trailing twelve months to December 2021).

So, SiS Mobile Holdings has an ROCE of 28%. That's a fantastic return and not only that, it outpaces the average of 6.1% earned by companies in a similar industry.

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

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

SiS Mobile Holdings has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 28% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, SiS Mobile Holdings is utilizing 39% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

Our Take On SiS Mobile Holdings' ROCE

To the delight of most shareholders, SiS Mobile Holdings has now broken into profitability. Although the company may be facing some issues elsewhere since the stock has plunged 82% in the last five years. Still, it's worth doing some further research to see if the trends will continue into the future.

If you'd like to know more about SiS Mobile Holdings, we've spotted 3 warning signs, and 1 of them is potentially serious.

SiS Mobile Holdings is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.