If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Having said that, from a first glance at Qinhuangdao Port (HKG:3369) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Qinhuangdao Port is:

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

0.061 = CN¥1.5b ÷ (CN¥28b - CN¥3.0b) (Based on the trailing twelve months to September 2024).

Therefore, Qinhuangdao Port has an ROCE of 6.1%. On its own, that's a low figure but it's around the 5.2% average generated by the Infrastructure industry.

Historical performance is a great place to start when researching a stock so above you can see the gauge for Qinhuangdao Port's ROCE against it's prior returns. If you're interested in investigating Qinhuangdao Port's past further, check out this free graph covering Qinhuangdao Port's past earnings, revenue and cash flow.

How Are Returns Trending?

Things have been pretty stable at Qinhuangdao Port, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Qinhuangdao Port doesn't end up being a multi-bagger in a few years time.

The Bottom Line On Qinhuangdao Port's ROCE

In summary, Qinhuangdao Port isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Although the market must be expecting these trends to improve because the stock has gained 85% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you'd like to know about the risks facing Qinhuangdao Port, we've discovered 1 warning sign that you should be aware of.

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.