In This Article:
If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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.
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. The formula for this calculation on Hai Leck Holdings is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.043 = S$5.2m ÷ (S$130m - S$9.5m) (Based on the trailing twelve months to March 2025).
Therefore, Hai Leck Holdings has an ROCE of 4.3%. Even though it's in line with the industry average of 4.3%, it's still a low return by itself.
View our latest analysis for Hai Leck 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 Hai Leck Holdings.
What The Trend Of ROCE Can Tell Us
Things have been pretty stable at Hai Leck 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 don't be surprised if Hai Leck Holdings doesn't end up being a multi-bagger in a few years time.
Our Take On Hai Leck Holdings' ROCE
In summary, Hai Leck Holdings isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has gained an impressive 78% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.
Hai Leck Holdings does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is significant...