BII Railway Transportation Technology Holdings (HKG:1522) does what it takes to multiply its stock price

If we want to find a potential multi-bagger, there are often underlying trends that can provide clues. Typically, we will want to notice a growth trend to return to on capital employed (ROCE) and at the same time, a base capital employed. If you see this, it usually means it’s a company with a great business model and lots of profitable reinvestment opportunities. So when we looked BII Railway Transportation Technology Holdings (HKG:1522) and its ROCE trend, we really liked what we saw.

What is return on capital employed (ROCE)?

If you’ve never worked with ROCE before, it measures the “yield” (pre-tax profit) a company generates from the capital used in its business. To calculate this metric for BII Railway Transportation Technology Holdings, here is the formula:

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

0.073 = HK$194 million ÷ (HK$4.5 billion – HK$1.9 billion) (Based on the last twelve months to June 2021).

So, BII Railway Transportation Technology Holdings has an ROI of 7.3%. On its own, that’s a poor return, but compared to the 5.2% average generated by the software industry, it’s much better.

Check out our latest analysis for BII Railway Transportation Technology Holdings

SEHK:1522 Return on capital employed March 23, 2022

Historical performance is a great starting point when researching a stock. So above you can see BII Railway Transportation Technology Holdings’ ROCE gauge compared to its past returns. If you want to dive deep into the history of BII Railway Transportation Technology Holdings earnings, revenue, and cash flow, check out these free graphics here.

What can we say about the ROCE trend of BII Railway Transportation Technology Holdings?

Even though ROCE is still weak in absolute terms, it is good to see that it is heading in the right direction. The figures show that over the past five years, returns generated on capital employed have increased significantly to 7.3%. Basically, the business earns more per dollar of invested capital and on top of that, 111% more capital is also utilized now. So we’re very inspired by what we’re seeing at BII Railway Transportation Technology Holdings with its ability to profitably reinvest capital.

For the record though, there was a noticeable increase in the company’s current liabilities over the period, so we would attribute some of the ROCE growth to that. Essentially, the company now has suppliers or short-term creditors funding about 41% of its operations, which is less than ideal. And with current liabilities at these levels, that’s pretty high.

Conclusion on the ROI of BII Railway Transportation Technology Holdings

Overall, it is great to see that BII Railway Transportation Technology Holdings is reaping the rewards of past investments and increasing its capital. And since the stock has fallen 66% in the last five years, there could be an opportunity here. It therefore seems warranted to do further research on this company and determine whether or not these trends will continue.

Like most businesses, BII Railway Transportation Technology Holdings involves certain risks, and we have found 4 warning signs of which you should be aware.

For those who like to invest in solid companies, look at this free list of companies with strong balance sheets and high returns on equity.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

Comments are closed.