Yahoo Finance Soup Holdings (SGX:5KI) Could Be Struggling To Allocate Capital
What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Soup Holdings (SGX:5KI), we don't think it's current trends fit the mold of a multi-bagger.
Understanding Return On Capital Employed (ROCE)
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Soup Holdings is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.084 = S$1.6m ÷ (S$31m - S$11m) (Based on the trailing twelve months to June 2023).
Thus, Soup Holdings has an ROCE of 8.4%. On its own that's a low return, but compared to the average of 3.9% generated by the Hospitality industry, it's much better.
View our latest analysis for Soup Holdings
Historical performance is a great place to start when researching a stock so above you can see the gauge for Soup Holdings' ROCE against it's prior returns. If you'd like to look at how Soup Holdings has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
The Trend Of ROCE
On the surface, the trend of ROCE at Soup Holdings doesn't inspire confidence. Around five years ago the returns on capital were 23%, but since then they've fallen to 8.4%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.
What We Can Learn From Soup Holdings' ROCE
Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Soup Holdings. These growth trends haven't led to growth returns though, since the stock has fallen 45% over the last five years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.
If you'd like to know more about Soup Holdings, we've spotted 4 warning signs, and 2 of them are significant.
While Soup Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
