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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at HKT Trust and HKT (HKG:6823) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for HKT Trust and HKT, this is the formula:

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

0.088 = HK$7.9b ÷ (HK$114b - HK$24b) (Based on the trailing twelve months to June 2024).

Thus, HKT Trust and HKT has an ROCE of 8.8%. In absolute terms, that's a low return, but it's much better than the Telecom industry average of 6.5%.

In the above chart we have measured HKT Trust and HKT's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering HKT Trust and HKT for free.

What The Trend Of ROCE Can Tell Us

There hasn't been much to report for HKT Trust and HKT's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if HKT Trust and HKT doesn't end up being a multi-bagger in a few years time.

The Key Takeaway

In a nutshell, HKT Trust and HKT has been trudging along with the same returns from the same amount of capital over the last five years. Unsurprisingly, the stock has only gained 11% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

One final note, you should learn about the 3 warning signs we've spotted with HKT Trust and HKT (including 1 which shouldn't be ignored) .

While HKT Trust and HKT 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.