If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. With that in mind, we've noticed some promising trends at Yantai North Andre JuiceLtd (HKG:2218) so let's look a bit deeper.
Understanding 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. To calculate this metric for Yantai North Andre JuiceLtd, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.089 = CN¥233m ÷ (CN¥2.7b - CN¥131m) (Based on the trailing twelve months to September 2024).
Therefore, Yantai North Andre JuiceLtd has an ROCE of 8.9%. In absolute terms, that's a low return but it's around the Food industry average of 7.5%.
See our latest analysis for Yantai North Andre JuiceLtd
Historical performance is a great place to start when researching a stock so above you can see the gauge for Yantai North Andre JuiceLtd's ROCE against it's prior returns. If you'd like to look at how Yantai North Andre JuiceLtd has performed in the past in other metrics, you can view this free graph of Yantai North Andre JuiceLtd's past earnings, revenue and cash flow.
What The Trend Of ROCE Can Tell Us
Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Over the last five years, returns on capital employed have risen substantially to 8.9%. 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 39%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
What We Can Learn From Yantai North Andre JuiceLtd's ROCE
All in all, it's terrific to see that Yantai North Andre JuiceLtd is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 96% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
Like most companies, Yantai North Andre JuiceLtd does come with some risks, and we've found 1 warning sign that you should be aware of.
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.