If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Astro-century Education&TechnologyLtd (SZSE:300654) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. The formula for this calculation on Astro-century Education&TechnologyLtd is:

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

0.06 = CN¥52m ÷ (CN¥1.2b - CN¥316m) (Based on the trailing twelve months to September 2024).

Therefore, Astro-century Education&TechnologyLtd has an ROCE of 6.0%. On its own, that's a low figure but it's around the 5.2% average generated by the Media industry.

Historical performance is a great place to start when researching a stock so above you can see the gauge for Astro-century Education&TechnologyLtd's ROCE against it's prior returns. If you're interested in investigating Astro-century Education&TechnologyLtd's past further, check out this free graph covering Astro-century Education&TechnologyLtd's past earnings, revenue and cash flow.

So How Is Astro-century Education&TechnologyLtd's ROCE Trending?

In terms of Astro-century Education&TechnologyLtd's historical ROCE trend, it doesn't exactly demand attention. The company has employed 76% more capital in the last five years, and the returns on that capital have remained stable at 6.0%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line On Astro-century Education&TechnologyLtd's ROCE

Long story short, while Astro-century Education&TechnologyLtd has been reinvesting its capital, the returns that it's generating haven't increased. Yet to long term shareholders the stock has gifted them an incredible 136% return in the last five years, so the market appears to be rosy about its future. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

While Astro-century Education&TechnologyLtd doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for 300654 on our platform.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.