A Look Into Vipshop Holdings' (NYSE:VIPS) Impressive Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Vipshop Holdings (NYSE:VIPS) looks attractive right now, so lets see what the trend of returns can tell us.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Vipshop Holdings is:

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

0.20 = CN¥9.2b ÷ (CN¥75b - CN¥30b) (Based on the trailing twelve months to December 2024).

Therefore, Vipshop Holdings has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Multiline Retail industry average of 12%.

Check out our latest analysis for Vipshop Holdings

Above you can see how the current ROCE for Vipshop Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Vipshop Holdings .

How Are Returns Trending?

It's hard not to be impressed by Vipshop Holdings' returns on capital. Over the past five years, ROCE has remained relatively flat at around 20% and the business has deployed 83% more capital into its operations. Now considering ROCE is an attractive 20%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

The Key Takeaway

Vipshop Holdings has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And given the stock has only risen 17% over the last five years, we'd suspect the market is beginning to recognize these trends. So because of the trends we're seeing, we'd recommend looking further into this stock to see if it has the makings of a multi-bagger.

While Vipshop Holdings looks impressive, no company is worth an infinite price. The intrinsic value infographic for VIPS helps visualize whether it is currently trading for a fair price.

Vipshop Holdings is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.