There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Xinhua Winshare Publishing and Media (HKG:811), we don't think it's current trends fit the mold of a multi-bagger.
Understanding Return On Capital Employed (ROCE)
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Xinhua Winshare Publishing and Media, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.097 = CN¥1.3b ÷ (CN¥21b - CN¥7.2b) (Based on the trailing twelve months to June 2023).
Thus, Xinhua Winshare Publishing and Media has an ROCE of 9.7%. On its own, that's a low figure but it's around the 8.6% average generated by the Media industry.
See our latest analysis for Xinhua Winshare Publishing and Media
Above you can see how the current ROCE for Xinhua Winshare Publishing and Media compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Xinhua Winshare Publishing and Media here for free.
How Are Returns Trending?
There are better returns on capital out there than what we're seeing at Xinhua Winshare Publishing and Media. Over the past five years, ROCE has remained relatively flat at around 9.7% and the business has deployed 68% more capital into its operations. 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.
What We Can Learn From Xinhua Winshare Publishing and Media's ROCE
In conclusion, Xinhua Winshare Publishing and Media has been investing more capital into the business, but returns on that capital haven't increased. Although the market must be expecting these trends to improve because the stock has gained 74% over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.
Xinhua Winshare Publishing and Media does have some risks though, and we've spotted 1 warning sign for Xinhua Winshare Publishing and Media that you might be interested in.
While Xinhua Winshare Publishing and Media isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.