Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. With that in mind, the ROCE of World-Link Logistics (Asia) Holding (HKG:6083) looks attractive right now, so lets see what the trend of returns can tell us.
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 World-Link Logistics (Asia) Holding:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.21 = HK$25m ÷ (HK$181m - HK$61m) (Based on the trailing twelve months to December 2020).
Thus, World-Link Logistics (Asia) Holding has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Logistics industry average of 14%.
Historical performance is a great place to start when researching a stock so above you can see the gauge for World-Link Logistics (Asia) Holding's ROCE against it's prior returns. If you're interested in investigating World-Link Logistics (Asia) Holding's past further, check out this free graph of past earnings, revenue and cash flow.
How Are Returns Trending?
In terms of World-Link Logistics (Asia) Holding's history of ROCE, it's quite impressive. The company has employed 90% more capital in the last five years, and the returns on that capital have remained stable at 21%. Now considering ROCE is an attractive 21%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.
World-Link Logistics (Asia) Holding has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. Yet over the last five years the stock has declined 43%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.
If you'd like to know about the risks facing World-Link Logistics (Asia) Holding, we've discovered 2 warning signs that you should be aware of.
World-Link Logistics (Asia) Holding is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.
If you’re looking to trade World-Link Logistics (Asia) Holding, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted
Valuation is complex, but we're helping make it simple.
Find out whether World-Link Logistics (Asia) Holding is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free Analysis
This article by Simply Wall St is general in nature. 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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.