Returns At Chuan Holdings (HKG:1420) Are On The Way Up

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Chuan Holdings (HKG:1420) looks quite promising in regards to its trends of return on capital.

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Understanding Return On Capital Employed (ROCE)

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 Chuan Holdings:

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

0.10 = S$15m ÷ (S$191m - S$41m) (Based on the trailing twelve months to June 2025).

Thus, Chuan Holdings has an ROCE of 10%. On its own, that's a standard return, however it's much better than the 4.9% generated by the Construction industry.

View our latest analysis for Chuan Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Chuan Holdings' ROCE against it's prior returns. If you'd like to look at how Chuan Holdings has performed in the past in other metrics, you can view this free graph of Chuan Holdings' past earnings, revenue and cash flow.

How Are Returns Trending?

The fact that Chuan Holdings is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 10% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Chuan Holdings is utilizing 51% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Key Takeaway

Overall, Chuan Holdings gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And a remarkable 122% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing, we've spotted 1 warning sign facing Chuan Holdings that you might find interesting.

While Chuan Holdings 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.