To find a multi-bagger stock, what should you look for in the underlying trends of the company? In particular, you should look for two things. First, it should be growing. return Return on Invested Capital (ROCE) and secondly, the company’s amount This is the ratio of invested capital to total capital. Essentially, this means that a company can continually reinvest in profitable endeavors. This is the hallmark of a compound interest machine. Henan Shuanghui Investment and Development Co., Ltd. (SZSE:000895) does have a high ROCE, but we’re not too happy with the return trend.
What is Return on Invested Capital (ROCE)?
For those unfamiliar, ROCE is a metric that assesses how much pre-tax profit (as a percentage) a company earned on the capital invested in its business: The formula for calculating this metric for Henan Shuanghui Investment & DevelopmentLtd is:
Return on Invested Capital = Earnings Before Interest and Taxes (EBIT) ÷ (Total Assets – Current Liabilities)
0.26 = 6.2 billion yuan / (41 billion yuan – 18 billion yuan) (Based on the trailing 12 months ending March 2024).
therefore, Henan Shuanghui Investment and Development Co., Ltd. has an ROCE of 26%. Not only is this an excellent rate of return, but it’s also higher than the average of 7.6% earned by companies in a similar industry.
Check out our latest analysis for Henan Shuanghui Investment Development Co., Ltd.
Above you can see how Henan Shuanghui Investment & Development Ltd’s current ROCE compares to its prior returns on capital, but the history can only tell you so much, and if you want to see what analysts are predicting going forward you can check out this free analyst report on Henan Shuanghui Investment & Development Ltd.
What are the trends in returns?
On the surface, Henan Shuanghui Investment Development Co., Ltd.’s ROCE trend does not inspire confidence. While a high ROCE is reassuring, it was 41% five years ago. Meanwhile, the company has been deploying more capital in the past year without a corresponding improvement in revenue, which may suggest that these investments are a long-term commitment. It may take some time before we start to see a change in returns from these investments.
Another thing to note is that Henan Shuanghui Investment & Development Ltd has a high current liabilities to total assets ratio of 42%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so be aware that this may introduce some element of risk. Ideally, we’d like to see this ratio go down, as this would reduce the company’s obligation to take on risk.
Key Takeaways
In summary, Henan Shuanghui Investment Development Co., Ltd. is reinvesting capital for growth, but unfortunately sales still don’t seem to be growing much. Investors may be aware of these trends, as the company’s share price has only returned a total of 30% to shareholders over the past five years. So if you’re looking for a multi-bagger, underlying trends may suggest better opportunities exist elsewhere.
Henan Shuanghui Investment and Development Co., Ltd. has some risks, we 1 Warning Sign for Henan Shuanghui Investment Development Co., Ltd. Something you might be interested in.
High returns are a key component of strong performance. free A list of stocks with strong balance sheets and high return on equity.
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This article by Simply Wall St is general in nature. We use only unbiased methodologies to provide commentary based on historical data and analyst forecasts, and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks, and does not take into account your objectives, or your financial situation. We seek to provide long-term focused analysis driven by fundamental data. Note that our analysis may not take into account the latest price sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
