Cement News

Anhui Conch Cement (HKG:914) Has Some Way To Go To Become A Multi-Bagger


If you’re looking for a multi-bagger, there’s a few things to keep an eye out for. 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. If you see this, it typically means it’s a company with a great business model and plenty of profitable reinvestment opportunities. That’s why when we briefly looked at Anhui Conch Cement’s (HKG:914) ROCE trend, we were pretty happy with what we saw.

What Is 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 Anhui Conch Cement:

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

0.17 = CN¥33b ÷ (CN¥229b – CN¥32b) (Based on the trailing twelve months to June 2022).

So, Anhui Conch Cement has an ROCE of 17%. In absolute terms, that’s a satisfactory return, but compared to the Basic Materials industry average of 8.4% it’s much better.

Check out our latest analysis for Anhui Conch Cement

SEHK:914 Return on Capital Employed October 2nd 2022

Above you can see how the current ROCE for Anhui Conch Cement compares to its prior returns on capital, but there’s only so much you can tell from the past. If you’d like, you can check out the forecasts from the analysts covering Anhui Conch Cement here for free.

What The Trend Of ROCE Can Tell Us

While the current returns on capital are decent, they haven’t changed much. The company has consistently earned 17% for the last five years, and the capital employed within the business has risen 110% in that time. 17% is a pretty standard return, and it provides some comfort knowing that Anhui Conch Cement 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.

What We Can Learn From Anhui Conch Cement’s ROCE

To sum it up, Anhui Conch Cement has simply been reinvesting capital steadily, at those decent rates of return. Despite the good fundamentals, total returns from the stock have been virtually flat over the last five years. That’s why we think it’d be worthwhile to look further into this stock given the fundamentals are appealing.

One more thing: We’ve identified 2 warning signs with Anhui Conch Cement (at least 1 which doesn’t sit too well with us) , and understanding these would certainly be useful.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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.

Valuation is complex, but we’re helping make it simple.

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