Investors Shouldn't Overlook Hailiang Education Group's (NASDAQ:HLG) Impressive Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. And in light of that, the trends we're seeing at Hailiang Education Group's (NASDAQ:HLG) look very promising so lets take a look.

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. Analysts use this formula to calculate it for Hailiang Education Group:

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

0.24 = CN¥562m ÷ (CN¥3.6b - CN¥1.3b) (Based on the trailing twelve months to December 2020).

So, Hailiang Education Group has an ROCE of 24%. That's a fantastic return and not only that, it outpaces the average of 7.7% earned by companies in a similar industry.

See our latest analysis for Hailiang Education Group

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

How Are Returns Trending?

We like the trends that we're seeing from Hailiang Education Group. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 24%. 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 177%. So we're very much inspired by what we're seeing at Hailiang Education Group thanks to its ability to profitably reinvest capital.

The Bottom Line On Hailiang Education Group's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Hailiang Education Group has. Since the stock has returned a staggering 565% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

While Hailiang Education Group looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether HLG is currently trading for a fair price.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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This article by Simply Wall St is general in nature. 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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