Does YTO Express (International) Holdings (HKG:6123) Have The Makings Of A Multi-Bagger?

There are a few key trends to look for if we want to identify the next 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, YTO Express (International) Holdings (HKG:6123) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

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 YTO Express (International) Holdings:

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

0.19 = HK$150m ÷ (HK$1.4b - HK$596m) (Based on the trailing twelve months to June 2020).

Therefore, YTO Express (International) Holdings has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 7.7% generated by the Logistics industry.

Check out our latest analysis for YTO Express (International) Holdings

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're interested in investigating YTO Express (International) Holdings' past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

We like the trends that we're seeing from YTO Express (International) Holdings. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 19%. The amount of capital employed has increased too, by 74%. So we're very much inspired by what we're seeing at YTO Express (International) Holdings thanks to its ability to profitably reinvest capital.

Another thing to note, YTO Express (International) Holdings has a high ratio of current liabilities to total assets of 42%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

In Conclusion...

All in all, it's terrific to see that YTO Express (International) Holdings is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 337% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

YTO Express (International) Holdings does have some risks though, and we've spotted 1 warning sign for YTO Express (International) Holdings 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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