Qingdao Port International (HKG:6198) Might Have The Makings Of A Multi-Bagger

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Qingdao Port International (HKG:6198) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Qingdao Port International:

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

0.091 = CN¥4.0b ÷ (CN¥57b - CN¥13b) (Based on the trailing twelve months to March 2021).

So, Qingdao Port International has an ROCE of 9.1%. In absolute terms, that's a low return, but it's much better than the Infrastructure industry average of 6.7%.

Check out our latest analysis for Qingdao Port International

Above you can see how the current ROCE for Qingdao Port International compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Qingdao Port International here for free.

The Trend Of ROCE

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 9.1%. Basically the business is earning more per dollar of capital invested and in addition to that, 76% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

In summary, it's great to see that Qingdao Port International can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with a respectable 42% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing to note, we've identified 1 warning sign with Qingdao Port International and understanding this should be part of your investment process.

While Qingdao Port International isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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