To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. 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 Leshan Giantstar Farming&Husbandry (SHSE:603477), 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 Leshan Giantstar Farming&Husbandry:

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

0.046 = CN¥245m ÷ (CN¥8.5b - CN¥3.2b) (Based on the trailing twelve months to September 2024).

Thus, Leshan Giantstar Farming&Husbandry has an ROCE of 4.6%. Ultimately, that's a low return and it under-performs the Food industry average of 6.8%.

Above you can see how the current ROCE for Leshan Giantstar Farming&Husbandry compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Leshan Giantstar Farming&Husbandry for free.

So How Is Leshan Giantstar Farming&Husbandry's ROCE Trending?

The trend of ROCE doesn't look fantastic because it's fallen from 7.0% five years ago, while the business's capital employed increased by 512%. That being said, Leshan Giantstar Farming&Husbandry raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. It's unlikely that all of the funds raised have been put to work yet, so as a consequence Leshan Giantstar Farming&Husbandry might not have received a full period of earnings contribution from it.

Our Take On Leshan Giantstar Farming&Husbandry's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Leshan Giantstar Farming&Husbandry is reinvesting for growth and has higher sales as a result. And the stock has followed suit returning a meaningful 53% to shareholders over the last five years. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

On a separate note, we've found 1 warning sign for Leshan Giantstar Farming&Husbandry you'll probably want to know about.

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.

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.