Some Investors May Be Worried About Xiangxing International Holding's (HKG:1732) Returns On Capital

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 Xiangxing International Holding (HKG:1732), we don't think it's current trends fit the mold of a multi-bagger.

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What Is 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. To calculate this metric for Xiangxing International Holding, this is the formula:

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

0.066 = CN¥14m ÷ (CN¥239m - CN¥22m) (Based on the trailing twelve months to June 2025).

So, Xiangxing International Holding has an ROCE of 6.6%. On its own that's a low return, but compared to the average of 5.4% generated by the Shipping industry, it's much better.

See our latest analysis for Xiangxing International Holding

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

What Does the ROCE Trend For Xiangxing International Holding Tell Us?

When we looked at the ROCE trend at Xiangxing International Holding, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 6.6% from 14% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

The Key Takeaway

Bringing it all together, while we're somewhat encouraged by Xiangxing International Holding's reinvestment in its own business, we're aware that returns are shrinking. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 125% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Xiangxing International Holding does have some risks, we noticed 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

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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.