If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. Although, when we looked at Shijiazhuang Shangtai Technology (SZSE:001301), it didn't seem to tick all of these boxes.

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. To calculate this metric for Shijiazhuang Shangtai Technology, this is the formula:

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

0.11 = CN¥724m ÷ (CN¥7.6b - CN¥1.3b) (Based on the trailing twelve months to March 2024).

Therefore, Shijiazhuang Shangtai Technology has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Electrical industry average of 6.0% it's much better.

Above you can see how the current ROCE for Shijiazhuang Shangtai Technology compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Shijiazhuang Shangtai Technology .

So How Is Shijiazhuang Shangtai Technology's ROCE Trending?

When we looked at the ROCE trend at Shijiazhuang Shangtai Technology, we didn't gain much confidence. To be more specific, ROCE has fallen from 19% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Our Take On Shijiazhuang Shangtai Technology's ROCE

To conclude, we've found that Shijiazhuang Shangtai Technology is reinvesting in the business, but returns have been falling. Since the stock has declined 33% over the last year, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

If you'd like to know about the risks facing Shijiazhuang Shangtai Technology, we've discovered 3 warning signs that you should be aware of.

While Shijiazhuang Shangtai Technology isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.