There are a few key trends to look for if we want to identify the next multi-bagger. 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. Ergo, when we looked at the ROCE trends at Chow Tai Seng Jewellery (SZSE:002867), we liked what we saw.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Chow Tai Seng Jewellery is:

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

0.26 = CN¥1.6b ÷ (CN¥8.1b - CN¥1.8b) (Based on the trailing twelve months to September 2023).

So, Chow Tai Seng Jewellery has an ROCE of 26%. That's a fantastic return and not only that, it outpaces the average of 5.0% earned by companies in a similar industry.

In the above chart we have measured Chow Tai Seng Jewellery's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Chow Tai Seng Jewellery .

What Can We Tell From Chow Tai Seng Jewellery's ROCE Trend?

It's hard not to be impressed by Chow Tai Seng Jewellery's returns on capital. The company has consistently earned 26% for the last five years, and the capital employed within the business has risen 67% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

In Conclusion...

In summary, we're delighted to see that Chow Tai Seng Jewellery has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And the stock has followed suit returning a meaningful 70% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

If you want to continue researching Chow Tai Seng Jewellery, you might be interested to know about the 1 warning sign that our analysis has discovered.

Chow Tai Seng Jewellery is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.