Yihai International Holding (HKG:1579) May Have Issues Allocating Its Capital
Yihai International Holding (HKG:1579) has a high Return on Capital Employed (ROCE) of 23%, outperforming the food industry average of 13%. However, its ROCE has declined from 41% over the past five years, raising concerns about capital allocation and future earnings. Despite reinvesting in the business, the stock has dropped 87% in five years, indicating investor skepticism about recovery. Analysts suggest looking elsewhere for potential multi-bagger stocks, as Yihai may not meet the desired investment criteria.
To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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 when we looked at Yihai International Holding (HKG:1579), they do have a high ROCE, but we weren't exactly elated from how returns are trending.
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Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Yihai International Holding, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.23 = CN¥1.1b ÷ (CN¥5.4b - CN¥559m) (Based on the trailing twelve months to June 2025).
So, Yihai International Holding has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Food industry average of 13%.
View our latest analysis for Yihai International Holding
Above you can see how the current ROCE for Yihai International Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Yihai International Holding .
So How Is Yihai International Holding's ROCE Trending?
On the surface, the trend of ROCE at Yihai International Holding doesn't inspire confidence. To be more specific, while the ROCE is still high, it's fallen from 41% where it was five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
The Bottom Line
To conclude, we've found that Yihai International Holding is reinvesting in the business, but returns have been falling. It seems that investors have little hope of these trends getting any better and that may have partly contributed to the stock collapsing 87% in the last five years. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.
If you'd like to know about the risks facing Yihai International Holding, we've discovered 1 warning sign that you should be aware of.
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