Hutchison Port Holdings Trust (SGX:NS8U) Is Experiencing Growth In Returns On Capital

Simply Wall St
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To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. With that in mind, we've noticed some promising trends at Hutchison Port Holdings Trust (SGX:NS8U) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

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 Hutchison Port Holdings Trust:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.055 = HK$4.3b ÷ (HK$89b - HK$11b) (Based on the trailing twelve months to December 2022).

Therefore, Hutchison Port Holdings Trust has an ROCE of 5.5%. Even though it's in line with the industry average of 6.2%, it's still a low return by itself.

Check out our latest analysis for Hutchison Port Holdings Trust

roce
roce

In the above chart we have measured Hutchison Port Holdings Trust's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Hutchison Port Holdings Trust here for free.

So How Is Hutchison Port Holdings Trust's ROCE Trending?

We're pretty happy with how the ROCE has been trending at Hutchison Port Holdings Trust. The figures show that over the last five years, returns on capital have grown by 53%. The company is now earning HK$0.06 per dollar of capital employed. In regards to capital employed, Hutchison Port Holdings Trust appears to been achieving more with less, since the business is using 22% less capital to run its operation. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

In Conclusion...

From what we've seen above, Hutchison Port Holdings Trust has managed to increase it's returns on capital all the while reducing it's capital base. Given the stock has declined 12% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you'd like to know more about Hutchison Port Holdings Trust, we've spotted 3 warning signs, and 1 of them makes us a bit uncomfortable.

While Hutchison Port Holdings Trust may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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