If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Jiangsu Boqian New Materials Stock (SHSE:605376) and its ROCE trend, we weren't exactly thrilled.
Understanding 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 Jiangsu Boqian New Materials Stock is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0044 = CN¥7.4m ÷ (CN¥2.1b - CN¥424m) (Based on the trailing twelve months to September 2023).
Therefore, Jiangsu Boqian New Materials Stock has an ROCE of 0.4%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 6.2%.
Check out our latest analysis for Jiangsu Boqian New Materials Stock
Above you can see how the current ROCE for Jiangsu Boqian New Materials Stock compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What Does the ROCE Trend For Jiangsu Boqian New Materials Stock Tell Us?
When we looked at the ROCE trend at Jiangsu Boqian New Materials Stock, we didn't gain much confidence. Around five years ago the returns on capital were 27%, but since then they've fallen to 0.4%. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.
Our Take On Jiangsu Boqian New Materials Stock's ROCE
In summary, we're somewhat concerned by Jiangsu Boqian New Materials Stock's diminishing returns on increasing amounts of capital. It should come as no surprise then that the stock has fallen 41% over the last year, so it looks like investors are recognizing these changes. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.
If you want to know some of the risks facing Jiangsu Boqian New Materials Stock we've found 2 warning signs (1 is concerning!) that you should be aware of before investing here.
While Jiangsu Boqian New Materials Stock 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.