Capital Investments At Sheng Siong Group (SGX:OV8) Point To A Promising Future

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So, when we ran our eye over Sheng Siong Group's (SGX:OV8) trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Sheng Siong Group:

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

0.34 = S$158m ÷ (S$697m - S$229m) (Based on the trailing twelve months to September 2022).

Therefore, Sheng Siong Group has an ROCE of 34%. That's a fantastic return and not only that, it outpaces the average of 6.9% earned by companies in a similar industry.

Check out the opportunities and risks within the SG Consumer Retailing industry.

Above you can see how the current ROCE for Sheng Siong Group 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 Sheng Siong Group here for free.

How Are Returns Trending?

In terms of Sheng Siong Group's history of ROCE, it's quite impressive. The company has consistently earned 34% for the last five years, and the capital employed within the business has risen 81% in that time. Now considering ROCE is an attractive 34%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Sheng Siong Group can keep this up, we'd be very optimistic about its future.

The Bottom Line On Sheng Siong Group's ROCE

In summary, we're delighted to see that Sheng Siong Group has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. On top of that, the stock has rewarded shareholders with a remarkable 111% return to those who've held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

On a final note, we've found 1 warning sign for Sheng Siong Group that we think you should be aware of.

Sheng Siong Group is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.