If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Bluestar Adisseo (SHSE:600299), 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. The formula for this calculation on Bluestar Adisseo is:

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

0.094 = CN¥1.8b ÷ (CN¥22b - CN¥3.6b) (Based on the trailing twelve months to September 2024).

Thus, Bluestar Adisseo has an ROCE of 9.4%. On its own that's a low return, but compared to the average of 5.5% generated by the Chemicals industry, it's much better.

Above you can see how the current ROCE for Bluestar Adisseo compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Bluestar Adisseo for free.

What Can We Tell From Bluestar Adisseo's ROCE Trend?

Things have been pretty stable at Bluestar Adisseo, with its capital employed and returns on that capital staying somewhat the same for the last 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 Bluestar Adisseo doesn't end up being a multi-bagger in a few years time. This probably explains why Bluestar Adisseo is paying out 31% of its income to shareholders in the form of dividends. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

The Key Takeaway

In summary, Bluestar Adisseo isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And with the stock having returned a mere 11% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you're still interested in Bluestar Adisseo it's worth checking out our FREE intrinsic value approximation for 600299 to see if it's trading at an attractive price in other respects.

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

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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.