If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Xinhua Winshare Publishing and Media (HKG:811), it didn't seem to tick all of these boxes.
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. The formula for this calculation on Xinhua Winshare Publishing and Media is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.095 = CN¥1.4b ÷ (CN¥24b - CN¥8.9b) (Based on the trailing twelve months to September 2024).
So, Xinhua Winshare Publishing and Media has an ROCE of 9.5%. In absolute terms, that's a low return but it's around the Media industry average of 8.0%.
See our latest analysis for Xinhua Winshare Publishing and Media
In the above chart we have measured Xinhua Winshare Publishing and Media's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Xinhua Winshare Publishing and Media for free.
What Can We Tell From Xinhua Winshare Publishing and Media's ROCE Trend?
The returns on capital haven't changed much for Xinhua Winshare Publishing and Media in recent years. The company has employed 63% more capital in the last five years, and the returns on that capital have remained stable at 9.5%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.
The Bottom Line On Xinhua Winshare Publishing and Media's ROCE
In summary, Xinhua Winshare Publishing and Media has simply been reinvesting capital and generating the same low rate of return as before. Yet to long term shareholders the stock has gifted them an incredible 157% return in the last five years, so the market appears to be rosy about its future. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.
On a final note, we've found 1 warning sign for Xinhua Winshare Publishing and Media that we think you should be aware of.
While Xinhua Winshare Publishing and Media 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.