There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. Although, when we looked at Oriental Enterprise Holdings (HKG:18), it didn't seem to tick all of these boxes.
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 Oriental Enterprise Holdings, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.041 = HK$76m ÷ (HK$2.0b - HK$79m) (Based on the trailing twelve months to March 2024).
Therefore, Oriental Enterprise Holdings has an ROCE of 4.1%. Ultimately, that's a low return and it under-performs the Media industry average of 8.3%.
View our latest analysis for Oriental Enterprise Holdings
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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Oriental Enterprise Holdings.
What Can We Tell From Oriental Enterprise Holdings' ROCE Trend?
There hasn't been much to report for Oriental Enterprise Holdings' returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Oriental Enterprise Holdings to be a multi-bagger going forward.
The Bottom Line On Oriental Enterprise Holdings' ROCE
In summary, Oriental Enterprise Holdings isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And with the stock having returned a mere 15% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.
If you want to know some of the risks facing Oriental Enterprise Holdings we've found 2 warning signs (1 is significant!) that you should be aware of before investing here.
While Oriental Enterprise 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.