There are a few key trends to look for if we want to identify the next multi-bagger. 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. So when we looked at Changbai Mountain Tourism (SHSE:603099) and its trend of ROCE, we really liked what we saw.
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. To calculate this metric for Changbai Mountain Tourism, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = CN¥147m ÷ (CN¥1.3b - CN¥133m) (Based on the trailing twelve months to September 2023).
So, Changbai Mountain Tourism has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 5.5% generated by the Hospitality industry.
See our latest analysis for Changbai Mountain Tourism
In the above chart we have measured Changbai Mountain Tourism's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Changbai Mountain Tourism.
How Are Returns Trending?
Changbai Mountain Tourism's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 46% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.
What We Can Learn From Changbai Mountain Tourism's ROCE
To sum it up, Changbai Mountain Tourism is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a solid 71% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Changbai Mountain Tourism can keep these trends up, it could have a bright future ahead.
If you want to continue researching Changbai Mountain Tourism, you might be interested to know about the 1 warning sign that our analysis has discovered.
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.