Returns At Sinostar PEC Holdings (SGX:C9Q) Are On The Way Up

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. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Sinostar PEC Holdings (SGX:C9Q) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Sinostar PEC Holdings is:

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

0.14 = CN¥333m ÷ (CN¥2.7b - CN¥285m) (Based on the trailing twelve months to March 2021).

Therefore, Sinostar PEC Holdings has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 8.2% generated by the Oil and Gas industry.

Check out our latest analysis for Sinostar PEC Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Sinostar PEC Holdings' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Sinostar PEC Holdings, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at Sinostar PEC Holdings. The data shows that returns on capital have increased substantially over the last five years to 14%. Basically the business is earning more per dollar of capital invested and in addition to that, 335% more capital is being employed now too. So we're very much inspired by what we're seeing at Sinostar PEC Holdings thanks to its ability to profitably reinvest capital.

The Key Takeaway

In summary, it's great to see that Sinostar PEC Holdings can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

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

While Sinostar PEC Holdings may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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