Returns On Capital At COSCO SHIPPING Ports (HKG:1199) Have Stalled

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Having said that, from a first glance at COSCO SHIPPING Ports (HKG:1199) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper 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 COSCO SHIPPING Ports:

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

0.026 = US$263m ÷ (US$12b - US$1.7b) (Based on the trailing twelve months to March 2024).

Thus, COSCO SHIPPING Ports has an ROCE of 2.6%. Ultimately, that's a low return and it under-performs the Infrastructure industry average of 5.6%.

View our latest analysis for COSCO SHIPPING Ports

Above you can see how the current ROCE for COSCO SHIPPING Ports 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 analyst report for COSCO SHIPPING Ports .

So How Is COSCO SHIPPING Ports' ROCE Trending?

Over the past five years, COSCO SHIPPING Ports' ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect COSCO SHIPPING Ports to be a multi-bagger going forward. This probably explains why COSCO SHIPPING Ports is paying out 45% of its income to shareholders in the form of dividends. Unless businesses have highly compelling growth opportunities, they'll typically return some money to shareholders.

The Key Takeaway

We can conclude that in regards to COSCO SHIPPING Ports' returns on capital employed and the trends, there isn't much change to report on. Unsurprisingly then, the total return to shareholders over the last five years has been flat. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

COSCO SHIPPING Ports does have some risks though, and we've spotted 2 warning signs for COSCO SHIPPING Ports that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.