What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Ausupreme International Holdings (HKG:2031), we don't think it's current trends fit the mold of a multi-bagger.
Understanding Return On Capital Employed (ROCE)
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Ausupreme International Holdings is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.19 = HK$34m ÷ (HK$234m - HK$50m) (Based on the trailing twelve months to September 2024).
Therefore, Ausupreme International Holdings has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 12% generated by the Retail Distributors industry.
View our latest analysis for Ausupreme International 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 Ausupreme International Holdings has performed in the past in other metrics, you can view this free graph of Ausupreme International Holdings' past earnings, revenue and cash flow.
What Can We Tell From Ausupreme International Holdings' ROCE Trend?
Things have been pretty stable at Ausupreme International Holdings, with its capital employed and returns on that capital staying somewhat the same for the last five 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 Ausupreme International Holdings in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.
The Bottom Line
We can conclude that in regards to Ausupreme International Holdings' returns on capital employed and the trends, there isn't much change to report on. And investors may be recognizing these trends since the stock has only returned a total of 28% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.
On a separate note, we've found 2 warning signs for Ausupreme International Holdings you'll probably want to know about.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.