If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at NAURA Technology Group (SZSE:002371) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for NAURA Technology Group:

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

0.13 = CN¥4.7b ÷ (CN¥56b - CN¥20b) (Based on the trailing twelve months to March 2024).

Thus, NAURA Technology Group has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Semiconductor industry average of 3.9% it's much better.

In the above chart we have measured NAURA Technology Group's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for NAURA Technology Group .

What Can We Tell From NAURA Technology Group's ROCE Trend?

Investors would be pleased with what's happening at NAURA Technology Group. The data shows that returns on capital have increased substantially over the last five years to 13%. The amount of capital employed has increased too, by 518%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On NAURA Technology Group's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what NAURA Technology Group has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if NAURA Technology Group can keep these trends up, it could have a bright future ahead.

While NAURA Technology Group looks impressive, no company is worth an infinite price. The intrinsic value infographic for 002371 helps visualize whether it is currently trading for a fair price.

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.

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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.

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