Investors Will Want Sinostar PEC Holdings' (SGX:C9Q) Growth In ROCE To Persist

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. So when we looked at Sinostar PEC Holdings (SGX:C9Q) and its trend of ROCE, we really liked what we saw.

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. To calculate this metric for Sinostar PEC Holdings, this is the formula:

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

0.18 = CN¥460m ÷ (CN¥2.8b - CN¥299m) (Based on the trailing twelve months to June 2021).

Thus, Sinostar PEC Holdings has an ROCE of 18%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Oil and Gas industry average of 16%.

Check out our latest analysis for Sinostar PEC Holdings

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Sinostar PEC Holdings, check out these free graphs here.

What Does the ROCE Trend For Sinostar PEC Holdings Tell Us?

Investors would be pleased with what's happening at Sinostar PEC Holdings. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 18%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 343%. So we're very much inspired by what we're seeing at Sinostar PEC Holdings thanks to its ability to profitably reinvest capital.

In Conclusion...

To sum it up, Sinostar PEC Holdings 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 175% 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.

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

While Sinostar PEC 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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