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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Hutchison Port Holdings Trust (SGX:NS8U) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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)

0.07 = HK$5.2b ÷ (HK$92b - HK$17b) (Based on the trailing twelve months to June 2022).

Thus, Hutchison Port Holdings Trust has an ROCE of 7.0%. In absolute terms, that's a low return but it's around the Infrastructure industry average of 6.2%.

View our latest analysis for Hutchison Port Holdings Trust

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 to see what analysts are forecasting going forward, you should check out our free report for Hutchison Port Holdings Trust.

The Trend Of ROCE

Hutchison Port Holdings Trust has not disappointed in regards to ROCE growth. We found that the returns on capital employed over the last five years have risen by 108%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Interestingly, the business may be becoming more efficient because it's applying 25% less capital than it was five years ago. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

The Key Takeaway

In a nutshell, we're pleased to see that Hutchison Port Holdings Trust has been able to generate higher returns from less capital. And since the stock has fallen 24% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

Hutchison Port Holdings Trust does have some risks, we noticed 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

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.

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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.