There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. However, after investigating Chengdu Fusen Noble-House IndustrialLtd (SZSE:002818), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Chengdu Fusen Noble-House IndustrialLtd is:

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

0.14 = CN¥822m ÷ (CN¥7.2b - CN¥1.3b) (Based on the trailing twelve months to September 2024).

So, Chengdu Fusen Noble-House IndustrialLtd has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 5.0% generated by the Specialty Retail industry.

Above you can see how the current ROCE for Chengdu Fusen Noble-House IndustrialLtd 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 Chengdu Fusen Noble-House IndustrialLtd .

What Does the ROCE Trend For Chengdu Fusen Noble-House IndustrialLtd Tell Us?

In terms of Chengdu Fusen Noble-House IndustrialLtd's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 18%, but since then they've fallen to 14%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. 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.

The Key Takeaway

To conclude, we've found that Chengdu Fusen Noble-House IndustrialLtd is reinvesting in the business, but returns have been falling. Since the stock has gained an impressive 58% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you want to continue researching Chengdu Fusen Noble-House IndustrialLtd, you might be interested to know about the 1 warning sign that our analysis has discovered.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.