HKT Trust and HKT (HKG:6823) Has Some Way To Go To Become A Multi-Bagger

If you're looking for a multi-bagger, there's a few things to 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at HKT Trust and HKT (HKG:6823) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for HKT Trust and HKT:

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

0.081 = HK$7.1b ÷ (HK$110b - HK$21b) (Based on the trailing twelve months to June 2022).

So, HKT Trust and HKT has an ROCE of 8.1%. In absolute terms, that's a low return, but it's much better than the Telecom industry average of 6.6%.

Check out our latest analysis for HKT Trust and HKT

Above you can see how the current ROCE for HKT Trust and HKT compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for HKT Trust and HKT.

What The Trend Of ROCE Can Tell Us

There hasn't been much to report for HKT Trust and HKT's returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if HKT Trust and HKT doesn't end up being a multi-bagger in a few years time. That probably explains why HKT Trust and HKT has been paying out 116% of its earnings as dividends to shareholders. These mature businesses typically have reliable earnings and not many places to reinvest them, so the next best option is to put the earnings into shareholders pockets.

The Bottom Line On HKT Trust and HKT's ROCE

We can conclude that in regards to HKT Trust and HKT's returns on capital employed and the trends, there isn't much change to report on. And with the stock having returned a mere 32% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

One final note, you should learn about the 2 warning signs we've spotted with HKT Trust and HKT (including 1 which can't be ignored) .

While HKT Trust and HKT 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.