If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. Although, when we looked at Jonjee Hi-Tech Industrial and Commercial HoldingLtd (SHSE:600872), it didn't seem to tick all of these boxes.
Understanding Return On Capital Employed (ROCE)
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Jonjee Hi-Tech Industrial and Commercial HoldingLtd is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = CN¥679m ÷ (CN¥6.6b - CN¥1.3b) (Based on the trailing twelve months to September 2023).
Thus, Jonjee Hi-Tech Industrial and Commercial HoldingLtd has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 7.6% it's much better.
Above you can see how the current ROCE for Jonjee Hi-Tech Industrial and Commercial HoldingLtd 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 Jonjee Hi-Tech Industrial and Commercial HoldingLtd here for free.
So How Is Jonjee Hi-Tech Industrial and Commercial HoldingLtd's ROCE Trending?
There hasn't been much to report for Jonjee Hi-Tech Industrial and Commercial HoldingLtd's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Jonjee Hi-Tech Industrial and Commercial HoldingLtd to be a multi-bagger going forward. With fewer investment opportunities, it makes sense that Jonjee Hi-Tech Industrial and Commercial HoldingLtd has been paying out a decent 31% of its earnings to shareholders. Unless businesses have highly compelling growth opportunities, they'll typically return some money to shareholders.
The Bottom Line On Jonjee Hi-Tech Industrial and Commercial HoldingLtd's ROCE
In a nutshell, Jonjee Hi-Tech Industrial and Commercial HoldingLtd has been trudging along with the same returns from the same amount of capital over the last five years. And in the last five years, the stock has given away 22% 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.
On a final note, we've found 1 warning sign for Jonjee Hi-Tech Industrial and Commercial HoldingLtd that we think you should be aware of.
While Jonjee Hi-Tech Industrial and Commercial HoldingLtd 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.