What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Meilleure Health International Industry Group (HKG:2327), it didn't seem to tick all of these boxes.
Return On Capital Employed (ROCE): What Is It?
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. Analysts use this formula to calculate it for Meilleure Health International Industry Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.024 = HK$35m ÷ (HK$1.7b - HK$224m) (Based on the trailing twelve months to December 2023).
Therefore, Meilleure Health International Industry Group has an ROCE of 2.4%. Ultimately, that's a low return and it under-performs the Trade Distributors industry average of 6.2%.
Check out our latest analysis for Meilleure Health International Industry Group
Historical performance is a great place to start when researching a stock so above you can see the gauge for Meilleure Health International Industry Group's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Meilleure Health International Industry Group.
What Does the ROCE Trend For Meilleure Health International Industry Group Tell Us?
On the surface, the trend of ROCE at Meilleure Health International Industry Group doesn't inspire confidence. To be more specific, ROCE has fallen from 5.5% over the last five years. However it looks like Meilleure Health International Industry Group might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.
In Conclusion...
To conclude, we've found that Meilleure Health International Industry Group is reinvesting in the business, but returns have been falling. Moreover, since the stock has crumbled 70% over the last five years, it appears investors are expecting the worst. 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.
On a final note, we found 3 warning signs for Meilleure Health International Industry Group (1 shouldn't be ignored) you should be aware of.
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