Returns On Capital At Johnson Electric Holdings (HKG:179) Have Hit The Brakes
There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Johnson Electric Holdings (HKG:179), we don't think it's current trends fit the mold of a multi-bagger.
Return On Capital Employed (ROCE): What Is It?
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. To calculate this metric for Johnson Electric Holdings, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.082 = US$274m ÷ (US$4.3b - US$933m) (Based on the trailing twelve months to September 2025).
So, Johnson Electric Holdings has an ROCE of 8.2%. On its own that's a low return, but compared to the average of 4.0% generated by the Auto Components industry, it's much better.
Check out our latest analysis for Johnson Electric Holdings
Above you can see how the current ROCE for Johnson Electric Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Johnson Electric Holdings .
What The Trend Of ROCE Can Tell Us
Things have been pretty stable at Johnson Electric Holdings, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if Johnson Electric Holdings doesn't end up being a multi-bagger in a few years time.
Our Take On Johnson Electric Holdings' ROCE
In a nutshell, Johnson Electric Holdings has been trudging along with the same returns from the same amount of capital over the last five years. Yet to long term shareholders the stock has gifted them an incredible 112% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.
If you're still interested in Johnson Electric Holdings it's worth checking out our FREE intrinsic value approximation for 179 to see if it's trading at an attractive price in other respects.
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.
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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.