To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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 Jinneng Holding Shanxi Electric PowerLTD (SZSE:000767) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 Jinneng Holding Shanxi Electric PowerLTD:

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

0.0072 = CN¥270m ÷ (CN¥58b - CN¥21b) (Based on the trailing twelve months to June 2024).

Therefore, Jinneng Holding Shanxi Electric PowerLTD has an ROCE of 0.7%. Ultimately, that's a low return and it under-performs the Renewable Energy industry average of 5.6%.

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Jinneng Holding Shanxi Electric PowerLTD's past further, check out this free graph covering Jinneng Holding Shanxi Electric PowerLTD's past earnings, revenue and cash flow.

What Does the ROCE Trend For Jinneng Holding Shanxi Electric PowerLTD Tell Us?

In terms of Jinneng Holding Shanxi Electric PowerLTD's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 4.5%, but since then they've fallen to 0.7%. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

The Bottom Line On Jinneng Holding Shanxi Electric PowerLTD's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Jinneng Holding Shanxi Electric PowerLTD have fallen, meanwhile the business is employing more capital than it was five years ago. Investors must expect better things on the horizon though because the stock has risen 5.5% in the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

If you want to continue researching Jinneng Holding Shanxi Electric PowerLTD, you might be interested to know about the 1 warning sign that our analysis has discovered.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.