If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. And in light of that, the trends we're seeing at Shenzhen KSTAR Science and Technology's (SZSE:002518) look very promising so lets take a look.
What Is Return On Capital Employed (ROCE)?
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. To calculate this metric for Shenzhen KSTAR Science and Technology, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.24 = CN¥1.1b ÷ (CN¥6.9b - CN¥2.5b) (Based on the trailing twelve months to September 2023).
So, Shenzhen KSTAR Science and Technology has an ROCE of 24%. That's a fantastic return and not only that, it outpaces the average of 6.3% earned by companies in a similar industry.
Check out our latest analysis for Shenzhen KSTAR Science and Technology
Above you can see how the current ROCE for Shenzhen KSTAR Science and Technology 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 Shenzhen KSTAR Science and Technology here for free.
How Are Returns Trending?
The trends we've noticed at Shenzhen KSTAR Science and Technology are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 24%. The amount of capital employed has increased too, by 72%. So we're very much inspired by what we're seeing at Shenzhen KSTAR Science and Technology thanks to its ability to profitably reinvest capital.
The Bottom Line On Shenzhen KSTAR Science and Technology's ROCE
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Shenzhen KSTAR Science and Technology has. And a remarkable 234% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Shenzhen KSTAR Science and Technology can keep these trends up, it could have a bright future ahead.
If you'd like to know about the risks facing Shenzhen KSTAR Science and Technology, we've discovered 2 warning signs that you should be aware of.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.