Lap Kei Engineering (Holdings) (HKG:1690) Might Have The Makings Of A Multi-Bagger

There are a few key trends to look for if we want to identify the next multi-bagger. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Lap Kei Engineering (Holdings) (HKG:1690) and its trend of ROCE, we really liked what we saw.

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Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Lap Kei Engineering (Holdings):

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

0.0046 = HK$632k ÷ (HK$290m - HK$154m) (Based on the trailing twelve months to June 2025).

Thus, Lap Kei Engineering (Holdings) has an ROCE of 0.5%. Ultimately, that's a low return and it under-performs the Construction industry average of 4.9%.

See our latest analysis for Lap Kei Engineering (Holdings)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Lap Kei Engineering (Holdings)'s ROCE against it's prior returns. If you're interested in investigating Lap Kei Engineering (Holdings)'s past further, check out this free graph covering Lap Kei Engineering (Holdings)'s past earnings, revenue and cash flow.

So How Is Lap Kei Engineering (Holdings)'s ROCE Trending?

We're delighted to see that Lap Kei Engineering (Holdings) is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 0.5% on its capital. Not only that, but the company is utilizing 22% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

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. The current liabilities has increased to 53% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. And with current liabilities at those levels, that's pretty high.

What We Can Learn From Lap Kei Engineering (Holdings)'s ROCE

In summary, it's great to see that Lap Kei Engineering (Holdings) has managed to break into profitability and is continuing to reinvest in its business. Since the stock has only returned 33% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

If you'd like to know about the risks facing Lap Kei Engineering (Holdings), we've discovered 3 warning signs that you should be aware of.

While Lap Kei Engineering (Holdings) 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.