To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. In light of that, when we looked at Tianjin Jingwei Huikai Optoelectronic (SZSE:300120) and its ROCE trend, we weren't exactly thrilled.

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

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. Analysts use this formula to calculate it for Tianjin Jingwei Huikai Optoelectronic:

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

0.02 = CN¥70m ÷ (CN¥5.1b - CN¥1.5b) (Based on the trailing twelve months to September 2023).

Therefore, Tianjin Jingwei Huikai Optoelectronic has an ROCE of 2.0%. Ultimately, that's a low return and it under-performs the Electronic industry average of 5.0%.

Check out our latest analysis for Tianjin Jingwei Huikai Optoelectronic

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Tianjin Jingwei Huikai Optoelectronic's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

In terms of Tianjin Jingwei Huikai Optoelectronic's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 2.0% from 8.3% five years ago. 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 Bottom Line On Tianjin Jingwei Huikai Optoelectronic's ROCE

To conclude, we've found that Tianjin Jingwei Huikai Optoelectronic is reinvesting in the business, but returns have been falling. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. Therefore based on the analysis done in this article, we don't think Tianjin Jingwei Huikai Optoelectronic has the makings of a multi-bagger.

If you want to know some of the risks facing Tianjin Jingwei Huikai Optoelectronic we've found 4 warning signs (1 is a bit concerning!) that you should be aware of before investing here.

While Tianjin Jingwei Huikai Optoelectronic 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.