Returns Are Gaining Momentum At Shandong Hi-Speed Holdings Group (HKG:412)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. 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 Shandong Hi-Speed Holdings Group (HKG:412) so let's look a bit deeper.

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. Analysts use this formula to calculate it for Shandong Hi-Speed Holdings Group:

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

0.024 = HK$1.4b ÷ (HK$79b - HK$20b) (Based on the trailing twelve months to June 2024).

So, Shandong Hi-Speed Holdings Group has an ROCE of 2.4%. Ultimately, that's a low return and it under-performs the Renewable Energy industry average of 7.0%.

Check out our latest analysis for Shandong Hi-Speed Holdings Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Shandong Hi-Speed Holdings Group's ROCE against it's prior returns. If you're interested in investigating Shandong Hi-Speed Holdings Group's past further, check out this free graph covering Shandong Hi-Speed Holdings Group's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 2.4%. Basically the business is earning more per dollar of capital invested and in addition to that, 376% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line

To sum it up, Shandong Hi-Speed Holdings Group has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 378% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for 412 that compares the share price and estimated value.

While Shandong Hi-Speed Holdings Group 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.