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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, SiS Mobile Holdings (HKG:1362) looks quite promising in regards to its trends of return on capital.
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 SiS Mobile Holdings, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.053 = HK$8.9m ÷ (HK$225m - HK$57m) (Based on the trailing twelve months to June 2024).
Thus, SiS Mobile Holdings has an ROCE of 5.3%. Ultimately, that's a low return and it under-performs the Electronic industry average of 8.1%.
See our latest analysis for SiS Mobile Holdings
Historical performance is a great place to start when researching a stock so above you can see the gauge for SiS Mobile Holdings' ROCE against it's prior returns. If you're interested in investigating SiS Mobile Holdings' past further, check out this free graph covering SiS Mobile Holdings' past earnings, revenue and cash flow.
What Can We Tell From SiS Mobile Holdings' ROCE Trend?
SiS Mobile Holdings has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 5.3% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, SiS Mobile Holdings is utilizing 65% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
The Bottom Line
To the delight of most shareholders, SiS Mobile Holdings has now broken into profitability. Astute investors may have an opportunity here because the stock has declined 61% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.
SiS Mobile Holdings does have some risks, we noticed 4 warning signs (and 1 which shouldn't be ignored) we think you should know about.
While SiS Mobile 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.