We're Watching These Trends At Hosken Passenger Logistics and Rail (JSE:HPR)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Hosken Passenger Logistics and Rail (JSE:HPR) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Hosken Passenger Logistics and Rail, this is the formula:

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

0.17 = R316m ÷ (R2.3b - R477m) (Based on the trailing twelve months to September 2020).

Thus, Hosken Passenger Logistics and Rail has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 7.2% generated by the Transportation industry.

See our latest analysis for Hosken Passenger Logistics and Rail

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Hosken Passenger Logistics and Rail's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Hosken Passenger Logistics and Rail's ROCE Trend?

There hasn't been much to report for Hosken Passenger Logistics and Rail's returns and its level of capital employed because both metrics have been steady for the past three years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at Hosken Passenger Logistics and Rail in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

Our Take On Hosken Passenger Logistics and Rail's ROCE

In summary, Hosken Passenger Logistics and Rail isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And in the last year, the stock has given away 13% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

If you want to continue researching Hosken Passenger Logistics and Rail, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Hosken Passenger Logistics and Rail isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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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