Slowing Rates Of Return At Hutchison Port Holdings Trust (SGX:NS8U) Leave Little Room For Excitement

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Hutchison Port Holdings Trust (SGX:NS8U) 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)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Hutchison Port Holdings Trust, this is the formula:

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

0.046 = HK$3.4b ÷ (HK$84b - HK$11b) (Based on the trailing twelve months to December 2023).

Thus, Hutchison Port Holdings Trust has an ROCE of 4.6%. In absolute terms, that's a low return and it also under-performs the Infrastructure industry average of 6.3%.

Check out our latest analysis for Hutchison Port Holdings Trust

Above you can see how the current ROCE for Hutchison Port Holdings Trust compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Hutchison Port Holdings Trust .

What Can We Tell From Hutchison Port Holdings Trust's ROCE Trend?

Things have been pretty stable at Hutchison Port Holdings Trust, 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 Hutchison Port Holdings Trust in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. On top of that you'll notice that Hutchison Port Holdings Trust has been paying out a large portion (168%) of earnings in the form of dividends to shareholders. These mature businesses typically have reliable earnings and not many places to reinvest them, so the next best option is to put the earnings into shareholders pockets.

Our Take On Hutchison Port Holdings Trust's ROCE

In a nutshell, Hutchison Port Holdings Trust has been trudging along with the same returns from the same amount of capital over the last five years. And investors appear hesitant that the trends will pick up because the stock has fallen 13% in the last five years. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

One more thing: We've identified 3 warning signs with Hutchison Port Holdings Trust (at least 1 which is a bit concerning) , and understanding these would certainly be useful.

While Hutchison Port Holdings Trust isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.