Return Trends At CK Infrastructure Holdings (HKG:1038) Aren't Appealing

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at CK Infrastructure Holdings (HKG:1038) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What is 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. To calculate this metric for CK Infrastructure Holdings, this is the formula:

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

0.023 = HK$3.6b ÷ (HK$167b - HK$11b) (Based on the trailing twelve months to December 2020).

Therefore, CK Infrastructure Holdings has an ROCE of 2.3%. Ultimately, that's a low return and it under-performs the Electric Utilities industry average of 5.7%.

View our latest analysis for CK Infrastructure Holdings

Above you can see how the current ROCE for CK Infrastructure Holdings 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 CK Infrastructure Holdings here for free.

What The Trend Of ROCE Can Tell Us

In terms of CK Infrastructure Holdings' historical ROCE trend, it doesn't exactly demand attention. The company has employed 22% more capital in the last five years, and the returns on that capital have remained stable at 2.3%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Our Take On CK Infrastructure Holdings' ROCE

As we've seen above, CK Infrastructure Holdings' returns on capital haven't increased but it is reinvesting in the business. And in the last five years, the stock has given away 17% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

On a separate note, we've found 1 warning sign for CK Infrastructure Holdings you'll probably want to know about.

While CK Infrastructure Holdings 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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