Aiming for Continued Impressive Returns
Vipshop Holdings has been generating impressive returns with a stable return on capital employed (ROCE) of 20%. The company has also effectively reduced its current liabilities and consistently reinvested its earnings at high rates of return. While the stock may be more expensive, its strong fundamentals make it worth further research.
Super Alice
Super Alice
Nov. 05, 2023 16:54
Aiming for Continued Impressive Returns

When looking for the next multi-bagger, there are a few key trends to consider. Ideally, we want to see a company investing more capital into its business and earning increasing returns from that capital. These types of businesses are compounding machines, continuously reinvesting their earnings at higher rates of return. Vipshop Holdings' trend of return on capital employed (ROCE) caught our attention.

ROCE measures the pre-tax profit a company generates from capital employed in its business. For Vipshop Holdings, the formula to calculate ROCE is: Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities). Based on the trailing twelve months to March 2023, Vipshop Holdings has an ROCE of 20%. This return is fantastic and surpasses the industry average of 12%.

While we have analyzed Vipshop Holdings' prior ROCE against its prior performance, it is important to consider the future. If you want to know what analysts are forecasting for the company, you can check out our free report.

Vipshop Holdings' returns on capital are impressive. Over the past five years, the company has employed 137% more capital, while maintaining a stable 20% return on that capital. With such high returns, it is great to see the business reinvesting its money at appealing rates. If these trends continue, it wouldn't be surprising if Vipshop Holdings becomes a multi-bagger.

Additionally, Vipshop Holdings has successfully reduced its current liabilities to 38% of total assets over the last five years. This reduces some of the risks associated with operations, as the business has fewer outstanding obligations to suppliers and short-term creditors.

In summary, Vipshop Holdings has demonstrated its proficiency by generating high returns on increasing amounts of capital employed. Long-term investors have enjoyed a 117% return over the past five years. Although the stock may be considered "expensive" compared to before, we believe the strong fundamentals justify further research. However, it is also important to consider valuation. You can explore our comprehensive analysis for more information.

If you are interested in finding more stocks with high returns, you can check out our free report.

Valuation can be complex, but we aim to simplify it for you. Our comprehensive analysis includes fair value estimates, risks and warnings, dividends, insider transactions, and financial health. It will help you determine whether Vipshop Holdings is potentially over or undervalued. View the Free Analysis.

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It is important to note that this article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using an unbiased methodology. Our articles are not intended to be financial advice and do not constitute a recommendation to buy or sell any stock. They also do not take into account your objectives or financial situation. We strive to bring you long-term focused analysis driven by fundamental data. Please note that our analysis may not include the latest price-sensitive company announcements or qualitative material. Simply Wall St does not have a position in any stocks mentioned.

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