To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Zhongman Petroleum and Natural Gas GroupLtd (SHSE:603619) looks great, so lets see what the trend can tell us.
What Is 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 Zhongman Petroleum and Natural Gas GroupLtd:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.24 = CN¥1.2b ÷ (CN¥8.7b - CN¥3.4b) (Based on the trailing twelve months to September 2023).
Thus, Zhongman Petroleum and Natural Gas GroupLtd has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Energy Services industry average of 7.0%.
Check out our latest analysis for Zhongman Petroleum and Natural Gas GroupLtd
Above you can see how the current ROCE for Zhongman Petroleum and Natural Gas GroupLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
So How Is Zhongman Petroleum and Natural Gas GroupLtd's ROCE Trending?
We like the trends that we're seeing from Zhongman Petroleum and Natural Gas GroupLtd. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 24%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 106%. So we're very much inspired by what we're seeing at Zhongman Petroleum and Natural Gas GroupLtd thanks to its ability to profitably reinvest capital.
In Conclusion...
In summary, it's great to see that Zhongman Petroleum and Natural Gas GroupLtd can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 46% return over the last five years. In light of that, we think it's worth looking further into this stock because if Zhongman Petroleum and Natural Gas GroupLtd can keep these trends up, it could have a bright future ahead.
If you want to know some of the risks facing Zhongman Petroleum and Natural Gas GroupLtd we've found 2 warning signs (1 is significant!) that you should be aware of before investing here.
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.