Liaoning PortLtd (HKG:2880) 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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Liaoning PortLtd (HKG:2880), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Liaoning PortLtd:

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

0.029 = CN¥1.5b ÷ (CN¥56b - CN¥4.4b) (Based on the trailing twelve months to March 2021).

Thus, Liaoning PortLtd has an ROCE of 2.9%. Ultimately, that's a low return and it under-performs the Infrastructure industry average of 7.2%.

View our latest analysis for Liaoning PortLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Liaoning PortLtd's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Liaoning PortLtd, check out these free graphs here.

What Can We Tell From Liaoning PortLtd's ROCE Trend?

There are better returns on capital out there than what we're seeing at Liaoning PortLtd. The company has employed 86% more capital in the last five years, and the returns on that capital have remained stable at 2.9%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Key Takeaway

In conclusion, Liaoning PortLtd has been investing more capital into the business, but returns on that capital haven't increased. And in the last five years, the stock has given away 36% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Liaoning PortLtd has the makings of a multi-bagger.

Liaoning PortLtd does have some risks, we noticed 2 warning signs (and 1 which can't be ignored) we think you should know about.

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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