Jiangsu General Science Technology (SHSE:601500) Is Reinvesting At Lower Rates Of Return

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 briefly looking over the numbers, we don't think Jiangsu General Science Technology (SHSE:601500) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Jiangsu General Science Technology, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.028 = CN¥182m ÷ (CN¥10b - CN¥4.0b) (Based on the trailing twelve months to September 2023).

Therefore, Jiangsu General Science Technology has an ROCE of 2.8%. In absolute terms, that's a low return and it also under-performs the Auto Components industry average of 6.4%.

View our latest analysis for Jiangsu General Science Technology

In the above chart we have measured Jiangsu General Science Technology'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 Jiangsu General Science Technology .

What Does the ROCE Trend For Jiangsu General Science Technology Tell Us?

In terms of Jiangsu General Science Technology's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 6.7% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line

In summary, Jiangsu General Science Technology is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And in the last five years, the stock has given away 23% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Jiangsu General Science Technology has the makings of a multi-bagger.

Jiangsu General Science Technology could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 601500 on our platform quite valuable.

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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.