There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. Although, when we looked at Chinese Universe Publishing and Media Group (SHSE:600373), it didn't seem to tick all of these boxes.
What Is 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. Analysts use this formula to calculate it for Chinese Universe Publishing and Media Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.055 = CN¥1.1b ÷ (CN¥32b - CN¥12b) (Based on the trailing twelve months to June 2023).
Thus, Chinese Universe Publishing and Media Group has an ROCE of 5.5%. On its own that's a low return on capital but it's in line with the industry's average returns of 4.6%.
Check out our latest analysis for Chinese Universe Publishing and Media Group
In the above chart we have measured Chinese Universe Publishing and Media Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Chinese Universe Publishing and Media Group here for free.
So How Is Chinese Universe Publishing and Media Group's ROCE Trending?
On the surface, the trend of ROCE at Chinese Universe Publishing and Media Group doesn't inspire confidence. To be more specific, ROCE has fallen from 11% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
The Bottom Line
To conclude, we've found that Chinese Universe Publishing and Media Group is reinvesting in the business, but returns have been falling. Although the market must be expecting these trends to improve because the stock has gained 81% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.
Chinese Universe Publishing and Media Group does have some risks though, and we've spotted 1 warning sign for Chinese Universe Publishing and Media Group that you might be interested in.
While Chinese Universe Publishing and Media Group 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.
