If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Jinxin Fertility Group (HKG:1951), we don't think it's current trends fit the mold of a multi-bagger.
Return On Capital Employed (ROCE): What Is It?
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. The formula for this calculation on Jinxin Fertility Group is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.036 = CN¥480m ÷ (CN¥15b - CN¥1.7b) (Based on the trailing twelve months to December 2023).
Therefore, Jinxin Fertility Group has an ROCE of 3.6%. Ultimately, that's a low return and it under-performs the Healthcare industry average of 10%.
Check out our latest analysis for Jinxin Fertility Group
Above you can see how the current ROCE for Jinxin Fertility Group 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 Jinxin Fertility Group .
The Trend Of ROCE
On the surface, the trend of ROCE at Jinxin Fertility Group doesn't inspire confidence. Over the last five years, returns on capital have decreased to 3.6% from 5.7% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.
Our Take On Jinxin Fertility Group's ROCE
While returns have fallen for Jinxin Fertility Group in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. But since the stock has dived 85% in the last three years, there could be other drivers that are influencing the business' outlook. Regardless, reinvestment can pay off in the long run, so we think astute investors may want to look further into this stock.
Jinxin Fertility Group could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 1951 on our platform quite valuable.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.