China International Holdings (SGX:BEH) Might Have The Makings Of A Multi-Bagger

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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, China International Holdings (SGX:BEH) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for China International Holdings, this is the formula:

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

0.0091 = CN¥3.9m ÷ (CN¥653m - CN¥223m) (Based on the trailing twelve months to September 2024).

So, China International Holdings has an ROCE of 0.9%. In absolute terms, that's a low return and it also under-performs the Water Utilities industry average of 7.4%.

See our latest analysis for China International Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for China International Holdings' ROCE against it's prior returns. If you'd like to look at how China International Holdings has performed in the past in other metrics, you can view this free graph of China International Holdings' past earnings, revenue and cash flow.

What Does the ROCE Trend For China International Holdings Tell Us?

China International Holdings has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 0.9% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by China International Holdings has remained flat over the period. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

The Bottom Line

To bring it all together, China International Holdings has done well to increase the returns it's generating from its capital employed. However the stock is down a substantial 87% in the last five years so there could be other areas of the business hurting its prospects. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.

One more thing: We've identified 4 warning signs with China International Holdings (at least 3 which make us uncomfortable) , and understanding these would certainly be useful.

While China International 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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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.