If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Zhejiang Provincial New Energy Investment Group (SHSE:600032) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
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. To calculate this metric for Zhejiang Provincial New Energy Investment Group, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.041 = CN¥1.9b ÷ (CN¥54b - CN¥7.8b) (Based on the trailing twelve months to March 2024).
So, Zhejiang Provincial New Energy Investment Group has an ROCE of 4.1%. Ultimately, that's a low return and it under-performs the Renewable Energy industry average of 5.9%.
In the above chart we have measured Zhejiang Provincial New Energy Investment 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 Zhejiang Provincial New Energy Investment Group for free.
So How Is Zhejiang Provincial New Energy Investment Group's ROCE Trending?
There are better returns on capital out there than what we're seeing at Zhejiang Provincial New Energy Investment Group. Over the past five years, ROCE has remained relatively flat at around 4.1% and the business has deployed 176% more capital into its operations. 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 Zhejiang Provincial New Energy Investment Group's ROCE
As we've seen above, Zhejiang Provincial New Energy Investment Group's returns on capital haven't increased but it is reinvesting in the business. Since the stock has declined 51% over the last three years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Zhejiang Provincial New Energy Investment Group has the makings of a multi-bagger.
One final note, you should learn about the 2 warning signs we've spotted with Zhejiang Provincial New Energy Investment Group (including 1 which is concerning) .
While Zhejiang Provincial New Energy Investment 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
