If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at YOUNGY (SZSE:002192) so let's look a bit deeper.
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. To calculate this metric for YOUNGY, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.078 = CN¥293m ÷ (CN¥4.4b - CN¥643m) (Based on the trailing twelve months to December 2023).
So, YOUNGY has an ROCE of 7.8%. In absolute terms, that's a low return but it's around the Metals and Mining industry average of 6.6%.
In the above chart we have measured YOUNGY'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 YOUNGY .
The Trend Of ROCE
YOUNGY has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 7.8% which is a sight for sore eyes. Not only that, but the company is utilizing 342% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
What We Can Learn From YOUNGY's ROCE
In summary, it's great to see that YOUNGY has managed to break into profitability and is continuing to reinvest in its business. Considering the stock has delivered 30% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.
One more thing: We've identified 3 warning signs with YOUNGY (at least 1 which makes us a bit uncomfortable) , and understanding them would certainly be useful.
While YOUNGY 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.
