Hutchison Port Holdings Trust (SGX:NS8U) Is Doing The Right Things To Multiply Its Share Price

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. So on that note, Hutchison Port Holdings Trust (SGX:NS8U) looks quite promising in regards to its trends of return on capital.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Hutchison Port Holdings Trust:

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

0.07 = HK$5.2b ÷ (HK$92b - HK$17b) (Based on the trailing twelve months to June 2022).

Thus, Hutchison Port Holdings Trust has an ROCE of 7.0%. In absolute terms, that's a low return but it's around the Infrastructure industry average of 6.0%.

View our latest analysis for Hutchison Port Holdings Trust

In the above chart we have measured Hutchison Port Holdings Trust's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Hutchison Port Holdings Trust here for free.

So How Is Hutchison Port Holdings Trust's ROCE Trending?

Hutchison Port Holdings Trust has not disappointed in regards to ROCE growth. The data shows that returns on capital have increased by 108% over the trailing five years. The company is now earning HK$0.07 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 25% less capital than it was five years ago. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

The Key Takeaway

In summary, it's great to see that Hutchison Port Holdings Trust has been able to turn things around and earn higher returns on lower amounts of capital. Astute investors may have an opportunity here because the stock has declined 40% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you'd like to know more about Hutchison Port Holdings Trust, we've spotted 2 warning signs, and 1 of them shouldn't be ignored.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.