Returns At Hutchison Port Holdings Trust (SGX:NS8U) Appear To Be Weighed Down

If you're looking for a multi-bagger, there's a few things to 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Hutchison Port Holdings Trust (SGX:NS8U), we don't think it's current trends fit the mold of a multi-bagger.

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 Hutchison Port Holdings Trust, this is the formula:

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

0.046 = HK$3.4b ÷ (HK$84b - HK$11b) (Based on the trailing twelve months to December 2023).

Thus, Hutchison Port Holdings Trust has an ROCE of 4.6%. Ultimately, that's a low return and it under-performs the Infrastructure industry average of 6.5%.

Check out our latest analysis for Hutchison Port Holdings Trust

Above you can see how the current ROCE for Hutchison Port Holdings Trust 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 Hutchison Port Holdings Trust for free.

The Trend Of ROCE

Over the past five years, Hutchison Port Holdings Trust's ROCE and capital employed have both remained mostly flat. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect Hutchison Port Holdings Trust to be a multi-bagger going forward. On top of that you'll notice that Hutchison Port Holdings Trust has been paying out a large portion (168%) of earnings in the form of dividends to shareholders. Most shareholders probably know this and own the stock for its dividend.

The Bottom Line

We can conclude that in regards to Hutchison Port Holdings Trust's returns on capital employed and the trends, there isn't much change to report on. Since the stock has declined 14% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Hutchison Port Holdings Trust has the makings of a multi-bagger.

Hutchison Port Holdings Trust does have some risks, we noticed 3 warning signs (and 1 which is significant) we think you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com