To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over AVIC Jonhon Optronic TechnologyLtd's (SZSE:002179) trend of ROCE, we liked what we saw.
Return On Capital Employed (ROCE): What Is It?
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. The formula for this calculation on AVIC Jonhon Optronic TechnologyLtd is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = CN¥3.0b ÷ (CN¥36b - CN¥12b) (Based on the trailing twelve months to June 2024).
Therefore, AVIC Jonhon Optronic TechnologyLtd has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 5.6% generated by the Electronic industry.
In the above chart we have measured AVIC Jonhon Optronic TechnologyLtd'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 AVIC Jonhon Optronic TechnologyLtd for free.
What Does the ROCE Trend For AVIC Jonhon Optronic TechnologyLtd Tell Us?
While the current returns on capital are decent, they haven't changed much. The company has consistently earned 13% for the last five years, and the capital employed within the business has risen 186% in that time. 13% is a pretty standard return, and it provides some comfort knowing that AVIC Jonhon Optronic TechnologyLtd has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
The Bottom Line
The main thing to remember is that AVIC Jonhon Optronic TechnologyLtd has proven its ability to continually reinvest at respectable rates of return. Therefore it's no surprise that shareholders have earned a respectable 68% return if they held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
On a final note, we've found 1 warning sign for AVIC Jonhon Optronic TechnologyLtd that we think you should be aware of.
While AVIC Jonhon Optronic TechnologyLtd 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.
