What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. However, after investigating Accelink Technologies CoLtd (SZSE:002281), we don't think it's current trends fit the mold of a multi-bagger.
Return On Capital Employed (ROCE): What Is It?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Accelink Technologies CoLtd:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.049 = CN¥444m ÷ (CN¥12b - CN¥3.0b) (Based on the trailing twelve months to March 2024).
Thus, Accelink Technologies CoLtd has an ROCE of 4.9%. In absolute terms, that's a low return but it's around the Electronic industry average of 5.6%.
Above you can see how the current ROCE for Accelink Technologies CoLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Accelink Technologies CoLtd .
How Are Returns Trending?
There are better returns on capital out there than what we're seeing at Accelink Technologies CoLtd. Over the past five years, ROCE has remained relatively flat at around 4.9% and the business has deployed 140% 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.
On a side note, Accelink Technologies CoLtd has done well to reduce current liabilities to 25% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.
Our Take On Accelink Technologies CoLtd's ROCE
In summary, Accelink Technologies CoLtd has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has gained an impressive 56% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.
Accelink Technologies CoLtd does have some risks though, and we've spotted 1 warning sign for Accelink Technologies CoLtd that you might be interested in.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.