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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating China South Publishing & Media Group (SHSE:601098), we don't think it's current trends fit the mold of a multi-bagger.
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. Analysts use this formula to calculate it for China South Publishing & Media Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.089 = CN¥1.5b ÷ (CN¥25b - CN¥8.6b) (Based on the trailing twelve months to September 2023).
Therefore, China South Publishing & Media Group has an ROCE of 8.9%. In absolute terms, that's a low return, but it's much better than the Media industry average of 4.9%.
Check out our latest analysis for China South Publishing & Media Group
Above you can see how the current ROCE for China South Publishing & Media Group 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 China South Publishing & Media Group here for free.
What Does the ROCE Trend For China South Publishing & Media Group Tell Us?
There hasn't been much to report for China South Publishing & Media Group's returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if China South Publishing & Media Group doesn't end up being a multi-bagger in a few years time.
Our Take On China South Publishing & Media Group's ROCE
In a nutshell, China South Publishing & Media Group has been trudging along with the same returns from the same amount of capital over the last five years. And investors may be recognizing these trends since the stock has only returned a total of 2.1% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.
China South Publishing & Media Group could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.
While China South Publishing & Media Group 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.