Yeebo (International Holdings) (HKG:259) Might Be Having Difficulty Using Its Capital Effectively

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. However, after investigating Yeebo (International Holdings) (HKG:259), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Yeebo (International Holdings), this is the formula:

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

0.014 = HK$36m ÷ (HK$2.9b - HK$383m) (Based on the trailing twelve months to March 2024).

So, Yeebo (International Holdings) has an ROCE of 1.4%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 7.2%.

See our latest analysis for Yeebo (International Holdings)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Yeebo (International Holdings)'s ROCE against it's prior returns. If you're interested in investigating Yeebo (International Holdings)'s past further, check out this free graph covering Yeebo (International Holdings)'s past earnings, revenue and cash flow.

How Are Returns Trending?

In terms of Yeebo (International Holdings)'s historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 1.4% from 2.2% five years ago. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

What We Can Learn From Yeebo (International Holdings)'s ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Yeebo (International Holdings) have fallen, meanwhile the business is employing more capital than it was five years ago. Yet despite these poor fundamentals, the stock has gained a huge 147% over the last five years, so investors appear very optimistic. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

Like most companies, Yeebo (International Holdings) does come with some risks, and we've found 1 warning sign that you should be aware of.

While Yeebo (International Holdings) 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. 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.