To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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 Meinian Onehealth Healthcare Holdings (SZSE:002044) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Meinian Onehealth Healthcare Holdings is:

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

0.06 = CN¥667m ÷ (CN¥19b - CN¥7.4b) (Based on the trailing twelve months to September 2023).

Thus, Meinian Onehealth Healthcare Holdings has an ROCE of 6.0%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 10%.

Above you can see how the current ROCE for Meinian Onehealth Healthcare Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Meinian Onehealth Healthcare Holdings .

The Trend Of ROCE

When we looked at the ROCE trend at Meinian Onehealth Healthcare Holdings, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 6.0% from 13% five years ago. However it looks like Meinian Onehealth Healthcare Holdings might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Meinian Onehealth Healthcare Holdings' ROCE

To conclude, we've found that Meinian Onehealth Healthcare Holdings is reinvesting in the business, but returns have been falling. Since the stock has declined 64% over the last five years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

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

While Meinian Onehealth Healthcare Holdings 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.