There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think TangShan Port GroupLtd (SHSE:601000) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for TangShan Port GroupLtd, this is the formula:

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

0.095 = CN¥2.1b ÷ (CN¥24b - CN¥1.6b) (Based on the trailing twelve months to June 2024).

Therefore, TangShan Port GroupLtd has an ROCE of 9.5%. In absolute terms, that's a low return, but it's much better than the Infrastructure industry average of 5.1%.

Above you can see how the current ROCE for TangShan Port GroupLtd 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 TangShan Port GroupLtd .

What The Trend Of ROCE Can Tell Us

There hasn't been much to report for TangShan Port GroupLtd's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if TangShan Port GroupLtd doesn't end up being a multi-bagger in a few years time.

On a side note, TangShan Port GroupLtd has done well to reduce current liabilities to 6.9% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

In Conclusion...

In a nutshell, TangShan Port GroupLtd 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 181% 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.

TangShan Port GroupLtd does have some risks though, and we've spotted 1 warning sign for TangShan Port GroupLtd that you might be interested in.

While TangShan Port GroupLtd 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.

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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.