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. 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 Winning Health Technology Group (SZSE:300253) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Winning Health Technology Group is:

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

0.052 = CN¥325m ÷ (CN¥7.5b - CN¥1.3b) (Based on the trailing twelve months to March 2022).

Therefore, Winning Health Technology Group has an ROCE of 5.2%. Even though it's in line with the industry average of 4.7%, it's still a low return by itself.

Check out our latest analysis for Winning Health Technology Group

Above you can see how the current ROCE for Winning Health Technology Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Winning Health Technology Group's ROCE Trending?

The returns on capital haven't changed much for Winning Health Technology Group in recent years. The company has employed 128% more capital in the last five years, and the returns on that capital have remained stable at 5.2%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Our Take On Winning Health Technology Group's ROCE

Long story short, while Winning Health Technology Group has been reinvesting its capital, the returns that it's generating haven't increased. Since the stock has gained an impressive 65% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

One more thing, we've spotted 2 warning signs facing Winning Health Technology Group that you might find interesting.

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.