Here's What To Make Of CLP Holdings' (HKG:2) Decelerating Rates Of Return

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. However, after investigating CLP Holdings (HKG:2), we don't think it's current trends fit the mold of a multi-bagger.

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What Is Return On Capital Employed (ROCE)?

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 CLP Holdings:

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

0.074 = HK$15b ÷ (HK$240b - HK$43b) (Based on the trailing twelve months to June 2025).

Therefore, CLP Holdings has an ROCE of 7.4%. On its own that's a low return, but compared to the average of 5.5% generated by the Electric Utilities industry, it's much better.

See our latest analysis for CLP Holdings

In the above chart we have measured CLP 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 analyst report for CLP Holdings .

What Can We Tell From CLP Holdings' ROCE Trend?

Over the past five years, CLP Holdings' ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if CLP Holdings doesn't end up being a multi-bagger in a few years time. On top of that you'll notice that CLP Holdings has been paying out a large portion (68%) of earnings in the form of dividends to shareholders. If the company is in fact lacking growth opportunities, that's one of the viable alternatives for the money.

The Key Takeaway

In summary, CLP Holdings isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And with the stock having returned a mere 16% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

One more thing, we've spotted 2 warning signs facing CLP Holdings that you might find interesting.

While CLP 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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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.