FIT Hon Teng (HKG:6088) Has Some Way To Go To Become A Multi-Bagger

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. So, when we ran our eye over FIT Hon Teng's (HKG:6088) trend of ROCE, we liked what we saw.

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. The formula for this calculation on FIT Hon Teng is:

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

0.10 = US$307m ÷ (US$4.5b - US$1.5b) (Based on the trailing twelve months to December 2022).

So, FIT Hon Teng has an ROCE of 10%. By itself that's a normal return on capital and it's in line with the industry's average returns of 9.6%.

See our latest analysis for FIT Hon Teng

Above you can see how the current ROCE for FIT Hon Teng compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

SWOT Analysis for FIT Hon Teng

What The Trend Of ROCE Can Tell Us

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 10% for the last five years, and the capital employed within the business has risen 58% in that time. 10% is a pretty standard return, and it provides some comfort knowing that FIT Hon Teng has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

Our Take On FIT Hon Teng's ROCE

To sum it up, FIT Hon Teng has simply been reinvesting capital steadily, at those decent rates of return. Yet over the last five years the stock has declined 37%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

FIT Hon Teng could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

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

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

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.