There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Dazhong Transportation (Group) (SHSE:600611), we don't think it's current trends fit the mold of a multi-bagger.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Dazhong Transportation (Group):

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

0.034 = CN¥454m ÷ (CN¥19b - CN¥6.1b) (Based on the trailing twelve months to September 2023).

Therefore, Dazhong Transportation (Group) has an ROCE of 3.4%. In absolute terms, that's a low return but it's around the Transportation industry average of 3.8%.

View our latest analysis for Dazhong Transportation (Group)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Dazhong Transportation (Group)'s ROCE against it's prior returns. If you'd like to look at how Dazhong Transportation (Group) has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Dazhong Transportation (Group)'s ROCE Trend?

When we looked at the ROCE trend at Dazhong Transportation (Group), we didn't gain much confidence. Around five years ago the returns on capital were 6.8%, but since then they've fallen to 3.4%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On Dazhong Transportation (Group)'s ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Dazhong Transportation (Group) is reinvesting for growth and has higher sales as a result. These growth trends haven't led to growth returns though, since the stock has fallen 16% over the last five years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

On a final note, we found 3 warning signs for Dazhong Transportation (Group) (1 is a bit unpleasant) you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.