In This Article:
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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Hai Leck Holdings (SGX:BLH) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
What Is Return On Capital Employed (ROCE)?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Hai Leck Holdings:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.029 = S$3.4m ÷ (S$128m - S$9.6m) (Based on the trailing twelve months to September 2024).
So, Hai Leck Holdings has an ROCE of 2.9%. Ultimately, that's a low return and it under-performs the Energy Services industry average of 11%.
Check out our latest analysis for Hai Leck Holdings
Historical performance is a great place to start when researching a stock so above you can see the gauge for Hai Leck Holdings' 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 Hai Leck Holdings.
How Are Returns Trending?
There hasn't been much to report for Hai Leck Holdings' returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Hai Leck 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
In a nutshell, Hai Leck Holdings has been trudging along with the same returns from the same amount of capital over the last five years. And investors may be recognizing these trends since the stock has only returned a total of 18% 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.
If you want to know some of the risks facing Hai Leck Holdings we've found 4 warning signs (1 is a bit concerning!) that you should be aware of before investing here.