Slowing Rates Of Return At CK Infrastructure Holdings (HKG:1038) Leave Little Room For Excitement

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating CK Infrastructure Holdings (HKG:1038), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its 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)

0.025 = HK$3.7b ÷ (HK$166b - HK$20b) (Based on the trailing twelve months to June 2021).

So, CK Infrastructure Holdings has an ROCE of 2.5%. Ultimately, that's a low return and it under-performs the Electric Utilities industry average of 5.8%.

Check out our latest analysis for CK Infrastructure Holdings

In the above chart we have measured CK Infrastructure Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for CK Infrastructure Holdings.

So How Is CK Infrastructure Holdings' ROCE Trending?

There are better returns on capital out there than what we're seeing at CK Infrastructure Holdings. The company has consistently earned 2.5% for the last five years, and the capital employed within the business has risen 20% in that time. 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.

The Bottom Line

In summary, CK Infrastructure Holdings has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has declined 14% over the last five years, investors may not be too optimistic on this trend improving either. 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.

CK Infrastructure Holdings could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

While CK Infrastructure 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.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.

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