NetDragon Websoft Holdings (HKG: 777) Sees Return on Capital Growth



Did you know that certain financial measures can provide clues about a potential multi-bagger? Ideally, a business will display two trends; first growth to recover on capital employed (ROCE) and on the other hand, an increase amount capital employed. Basically, it means that a business has profitable initiatives that it can keep reinvesting in, which is a hallmark of a dialing machine. With that in mind, we’ve noticed some promising trends at NetDragon Websoft Holdings (HKG: 777) so let’s look a little deeper.

What is Return on Employee Capital (ROCE)?

Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. The formula for this calculation on NetDragon Websoft Holdings is:

Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)

0.19 = CN Â¥ 1.6b ÷ (CN Â¥ 10b – CN Â¥ 2.2b) (Based on the last twelve months up to June 2021).

So, NetDragon Websoft Holdings has a ROCE of 19%. On its own, that’s a standard return, but it’s way better than the 12% generated by the entertainment industry.

Check out our latest review for NetDragon Websoft Holdings

SEHK: 777 Return on capital employed on September 17, 2021

In the chart above, we’ve measured NetDragon Websoft Holdings’ past ROCE against past performance, but the future is arguably more important. If you are interested, you can view analyst forecasts in our free analyst forecast report for the company.

What the ROCE trend can tell us

NetDragon Websoft Holdings recently reached profitability, so their past investments appear to be paying off. The company was making losses five years ago, but now it’s gaining 19%, which is a sight to behold. On top of that, NetDragon Websoft Holdings employs 89% more capital than before, which is expected of a business trying to achieve profitability. This may indicate that there are many opportunities to invest capital internally and at ever higher rates, two common characteristics of a multi-bagger.

In conclusion…

In short, we are delighted to see that NetDragon Websoft Holdings’ reinvestment activities have paid off and the company is now profitable. Given that the stock has fallen 31% in the past five years, this could be a good investment if valuation and other metrics are attractive as well. However, research into current valuation metrics and the company’s future prospects seems appropriate.

One more thing to note, we have identified 1 warning sign with NetDragon Websoft Holdings and understand that this should be part of your investment process.

Although NetDragon Websoft Holdings does not generate the highest return, check out this free list of companies that generate high returns on equity with strong balance sheets.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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