If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. 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 Jiangxi Huangshanghuang Group Food (SZSE:002695), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Jiangxi Huangshanghuang Group Food, this is the formula:

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

0.0041 = CN¥12m ÷ (CN¥3.3b - CN¥292m) (Based on the trailing twelve months to September 2024).

So, Jiangxi Huangshanghuang Group Food has an ROCE of 0.4%. Ultimately, that's a low return and it under-performs the Food industry average of 6.9%.

Above you can see how the current ROCE for Jiangxi Huangshanghuang Group Food 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 Jiangxi Huangshanghuang Group Food .

How Are Returns Trending?

On the surface, the trend of ROCE at Jiangxi Huangshanghuang Group Food doesn't inspire confidence. Around five years ago the returns on capital were 10.0%, but since then they've fallen to 0.4%. However it looks like Jiangxi Huangshanghuang Group Food might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Jiangxi Huangshanghuang Group Food's ROCE

Bringing it all together, while we're somewhat encouraged by Jiangxi Huangshanghuang Group Food's reinvestment in its own business, we're aware that returns are shrinking. And in the last five years, the stock has given away 47% so the market doesn't look too hopeful on these trends strengthening any time soon. 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.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Jiangxi Huangshanghuang Group Food (of which 1 is a bit concerning!) that you should know about.

While Jiangxi Huangshanghuang Group Food isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.