If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 Phoenix Publishing & Media (SHSE:601928) and its ROCE trend, we weren't exactly thrilled.
Understanding 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. Analysts use this formula to calculate it for Jiangsu Phoenix Publishing & Media:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.077 = CN¥1.5b ÷ (CN¥31b - CN¥11b) (Based on the trailing twelve months to September 2023).
Thus, Jiangsu Phoenix Publishing & Media has an ROCE of 7.7%. In absolute terms, that's a low return, but it's much better than the Media industry average of 4.9%.
View our latest analysis for Jiangsu Phoenix Publishing & Media
In the above chart we have measured Jiangsu Phoenix Publishing & Media'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 report for Jiangsu Phoenix Publishing & Media.
What Can We Tell From Jiangsu Phoenix Publishing & Media's ROCE Trend?
The returns on capital haven't changed much for Jiangsu Phoenix Publishing & Media in recent years. The company has consistently earned 7.7% for the last five years, and the capital employed within the business has risen 31% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.
What We Can Learn From Jiangsu Phoenix Publishing & Media's ROCE
In summary, Jiangsu Phoenix Publishing & Media has simply been reinvesting capital and generating the same low rate of return as before. Although the market must be expecting these trends to improve because the stock has gained 56% 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.
On a final note, we've found 2 warning signs for Jiangsu Phoenix Publishing & Media that we think you should be aware of.
While Jiangsu Phoenix Publishing & Media may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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.
