If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Guangdong Great River Smarter Logistics (SZSE:002930) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
Return On Capital Employed (ROCE): What Is It?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Guangdong Great River Smarter Logistics is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.084 = CN¥628m ÷ (CN¥8.8b - CN¥1.3b) (Based on the trailing twelve months to September 2023).
Thus, Guangdong Great River Smarter Logistics has an ROCE of 8.4%. On its own that's a low return, but compared to the average of 4.9% generated by the Infrastructure industry, it's much better.
See our latest analysis for Guangdong Great River Smarter Logistics
In the above chart we have measured Guangdong Great River Smarter Logistics' 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 Guangdong Great River Smarter Logistics.
So How Is Guangdong Great River Smarter Logistics' ROCE Trending?
In terms of Guangdong Great River Smarter Logistics' historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 8.4% for the last five years, and the capital employed within the business has risen 237% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.
Our Take On Guangdong Great River Smarter Logistics' ROCE
Long story short, while Guangdong Great River Smarter Logistics has been reinvesting its capital, the returns that it's generating haven't increased. Since the stock has gained an impressive 44% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.
If you'd like to know more about Guangdong Great River Smarter Logistics, we've spotted 2 warning signs, and 1 of them shouldn't be ignored.
While Guangdong Great River Smarter Logistics 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.