Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. And from a first read, things don't look too good at A.Plus Group Holdings (HKG:1841), so let's see why.
What Is 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. Analysts use this formula to calculate it for A.Plus Group Holdings:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0086 = HK$1.0m ÷ (HK$147m - HK$28m) (Based on the trailing twelve months to September 2024).
So, A.Plus Group Holdings has an ROCE of 0.9%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 6.6%.
Check out our latest analysis for A.Plus Group 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'd like to look at how A.Plus Group Holdings has performed in the past in other metrics, you can view this free graph of A.Plus Group Holdings' past earnings, revenue and cash flow .
What Can We Tell From A.Plus Group Holdings' ROCE Trend?
In terms of A.Plus Group Holdings' historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 23% five years ago, but since then it has dropped noticeably. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect A.Plus Group Holdings to turn into a multi-bagger.
The Key Takeaway
All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. Long term shareholders who've owned the stock over the last five years have experienced a 14% depreciation in their investment, so it appears the market might not like these trends either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.
A.Plus Group Holdings does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is a bit unpleasant...
While A.Plus Group Holdings 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. 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.