Slowing Rates Of Return At Kwong Man Kee Group (HKG:8023) Leave Little Room For Excitement

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. That's why when we briefly looked at Kwong Man Kee Group's (HKG:8023) ROCE trend, we were pretty happy with 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 Kwong Man Kee Group:

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

0.11 = HK$15m ÷ (HK$180m - HK$49m) (Based on the trailing twelve months to March 2025).

Thus, Kwong Man Kee Group has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 5.1% generated by the Construction industry.

View our latest analysis for Kwong Man Kee Group

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Kwong Man Kee Group.

How Are Returns Trending?

While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 11% and the business has deployed 54% more capital into its operations. 11% is a pretty standard return, and it provides some comfort knowing that Kwong Man Kee Group has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Key Takeaway

To sum it up, Kwong Man Kee Group has simply been reinvesting capital steadily, at those decent rates of return. In light of this, the stock has only gained 29% over the last five years for shareholders who have owned the stock in this period. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

If you want to know some of the risks facing Kwong Man Kee Group we've found 3 warning signs (1 shouldn't be ignored!) that you should be aware of before investing here.

While Kwong Man Kee Group 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.