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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Shandong Weigao Group Medical Polymer (HKG:1066), we don't think it's current trends fit the mold of a multi-bagger.
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 Shandong Weigao Group Medical Polymer:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.072 = CN¥2.1b ÷ (CN¥35b - CN¥6.0b) (Based on the trailing twelve months to June 2024).
Thus, Shandong Weigao Group Medical Polymer has an ROCE of 7.2%. In absolute terms, that's a low return but it's around the Medical Equipment industry average of 8.5%.
View our latest analysis for Shandong Weigao Group Medical Polymer
In the above chart we have measured Shandong Weigao Group Medical Polymer's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Shandong Weigao Group Medical Polymer .
How Are Returns Trending?
In terms of Shandong Weigao Group Medical Polymer's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 7.2% from 9.9% five years ago. However it looks like Shandong Weigao Group Medical Polymer might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.
What We Can Learn From Shandong Weigao Group Medical Polymer's ROCE
To conclude, we've found that Shandong Weigao Group Medical Polymer is reinvesting in the business, but returns have been falling. And in the last five years, the stock has given away 41% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.
On a separate note, we've found 1 warning sign for Shandong Weigao Group Medical Polymer you'll probably want to know about.
While Shandong Weigao Group Medical Polymer may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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.