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Arts Optical International Holdings (HKG:1120) Might Have The Makings Of A Multi-Bagger

Simply Wall St · 12/31/2025 22:07

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Arts Optical International Holdings (HKG:1120) and its trend of ROCE, we really liked what we saw.

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What Is 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 Arts Optical International Holdings is:

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

0.041 = HK$32m ÷ (HK$1.4b - HK$671m) (Based on the trailing twelve months to June 2025).

Thus, Arts Optical International Holdings has an ROCE of 4.1%. In absolute terms, that's a low return and it also under-performs the Medical Equipment industry average of 7.7%.

See our latest analysis for Arts Optical International Holdings

roce
SEHK:1120 Return on Capital Employed December 31st 2025

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Arts Optical International Holdings' past further, check out this free graph covering Arts Optical International Holdings' past earnings, revenue and cash flow.

What Does the ROCE Trend For Arts Optical International Holdings Tell Us?

Arts Optical International Holdings has broken into the black (profitability) and we're sure it's a sight for sore eyes. While the business was unprofitable in the past, it's now turned things around and is earning 4.1% on its capital. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 46% of the business, which is more than it was five years ago. And with current liabilities at those levels, that's pretty high.

The Key Takeaway

As discussed above, Arts Optical International Holdings appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And with a respectable 45% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Like most companies, Arts Optical International Holdings does come with some risks, and we've found 1 warning sign that you should be aware of.

While Arts Optical International Holdings may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.