Qinhuangdao Port (HKG:3369) Hasn't Managed To Accelerate Its Returns

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Qinhuangdao Port (HKG:3369) 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 Qinhuangdao Port:

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

0.073 = CN¥1.7b ÷ (CN¥27b - CN¥3.5b) (Based on the trailing twelve months to March 2021).

Therefore, Qinhuangdao Port has an ROCE of 7.3%. On its own that's a low return on capital but it's in line with the industry's average returns of 6.7%.

View our latest analysis for Qinhuangdao Port

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Qinhuangdao Port, check out these free graphs here.

The Trend Of ROCE

Things have been pretty stable at Qinhuangdao Port, with its capital employed and returns on that capital staying somewhat the same for the last 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 unless we see a substantial change at Qinhuangdao Port in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

The Bottom Line

In summary, Qinhuangdao Port isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And in the last five years, the stock has given away 39% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

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

While Qinhuangdao Port may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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