Freetech Road Recycling Technology (Holdings) (HKG:6888) Might Have The Makings Of A Multi-Bagger

October 21, 2021
  •  Updated
March 16, 2022
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If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Freetech Road Recycling Technology (Holdings) (HKG:6888) so let's look a bit deeper.

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 Freetech Road Recycling Technology (Holdings):

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

0.083 = HK$71m ÷ (HK$1.2b - HK$338m) (Based on the trailing twelve months to June 2021).

So, Freetech Road Recycling Technology (Holdings) has an ROCE of 8.3%. Even though it's in line with the industry average of 8.2%, it's still a low return by itself.

See our latest analysis for Freetech Road Recycling Technology (Holdings)

SEHK:6888 Return on Capital Employed October 21st 2021

Historical performance is a great place to start when researching a stock so above you can see the gauge for Freetech Road Recycling Technology (Holdings)'s ROCE against it's prior returns. If you'd like to look at how Freetech Road Recycling Technology (Holdings) has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We're pretty happy with how the ROCE has been trending at Freetech Road Recycling Technology (Holdings). The figures show that over the last five years, returns on capital have grown by 20%. The company is now earning HK$0.08 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 31% less capital than it was five years ago. Freetech Road Recycling Technology (Holdings) may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

The Bottom Line On Freetech Road Recycling Technology (Holdings)'s ROCE

In summary, it's great to see that Freetech Road Recycling Technology (Holdings) has been able to turn things around and earn higher returns on lower amounts of capital. Astute investors may have an opportunity here because the stock has declined 68% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you want to continue researching Freetech Road Recycling Technology (Holdings), you might be interested to know about the 1 warning sign that our analysis has discovered.

While Freetech Road Recycling Technology (Holdings) 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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Find out whether Freetech Road Recycling Technology (Holdings) 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.

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