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If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Heeton Holdings (SGX:5DP) and its trend of ROCE, we really liked what we saw.
Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Heeton Holdings:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.024 = S$22m ÷ (S$985m - S$83m) (Based on the trailing twelve months to December 2024).
Therefore, Heeton Holdings has an ROCE of 2.4%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 3.2%.
See our latest analysis for Heeton Holdings
Historical performance is a great place to start when researching a stock so above you can see the gauge for Heeton Holdings' ROCE against it's prior returns. If you're interested in investigating Heeton Holdings' past further, check out this free graph covering Heeton Holdings' past earnings, revenue and cash flow .
The Trend Of ROCE
While the ROCE isn't as high as some other companies out there, it's great to see it's on the up. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 57% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
In Conclusion...
In summary, we're delighted to see that Heeton Holdings has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 3.9% to shareholders. So with that in mind, we think the stock deserves further research.