Return Trends At CITIC Telecom International Holdings (HKG:1883) Aren't Appealing

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. However, after investigating CITIC Telecom International Holdings (HKG:1883), 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. The formula for this calculation on CITIC Telecom International Holdings is:

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

0.096 = HK$1.5b ÷ (HK$18b - HK$2.2b) (Based on the trailing twelve months to December 2020).

So, CITIC Telecom International Holdings has an ROCE of 9.6%. On its own that's a low return, but compared to the average of 6.6% generated by the Telecom industry, it's much better.

See our latest analysis for CITIC Telecom International Holdings

In the above chart we have measured CITIC Telecom International Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering CITIC Telecom International Holdings here for free.

How Are Returns Trending?

There hasn't been much to report for CITIC Telecom International Holdings' returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect CITIC Telecom International Holdings to be a multi-bagger going forward. On top of that you'll notice that CITIC Telecom International Holdings has been paying out a large portion (74%) of earnings in the form of dividends to shareholders. Most shareholders probably know this and own the stock for its dividend.

Our Take On CITIC Telecom International Holdings' ROCE

We can conclude that in regards to CITIC Telecom International Holdings' returns on capital employed and the trends, there isn't much change to report on. Unsurprisingly, the stock has only gained 18% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

CITIC Telecom International Holdings does have some risks though, and we've spotted 1 warning sign for CITIC Telecom International Holdings that you might be interested in.

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. 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.
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