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. However, after investigating Jinzi HamLtd (SZSE:002515), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What Is It?

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 Jinzi HamLtd:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.0053 = CN¥14m ÷ (CN¥2.8b - CN¥147m) (Based on the trailing twelve months to March 2024).

So, Jinzi HamLtd has an ROCE of 0.5%. Ultimately, that's a low return and it under-performs the Food industry average of 7.6%.

Historical performance is a great place to start when researching a stock so above you can see the gauge for Jinzi HamLtd's ROCE against it's prior returns. If you'd like to look at how Jinzi HamLtd has performed in the past in other metrics, you can view this free graph of Jinzi HamLtd's past earnings, revenue and cash flow.

The Trend Of ROCE

The returns on capital haven't changed much for Jinzi HamLtd in recent years. The company has consistently earned 0.5% for the last five years, and the capital employed within the business has risen 91% in that time. 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 Jinzi HamLtd's ROCE

In summary, Jinzi HamLtd has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has declined 16% over the last five 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 Jinzi HamLtd has the makings of a multi-bagger.

Jinzi HamLtd does have some risks though, and we've spotted 1 warning sign for Jinzi HamLtd that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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