Shareholders Are Optimistic That Ningbo Deye Technology Group (SHSE:605117) Will Multiply In Value

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. So, when we ran our eye over Ningbo Deye Technology Group's (SHSE:605117) trend of ROCE, we really liked what we saw.

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. Analysts use this formula to calculate it for Ningbo Deye Technology Group:

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

0.44 = CN¥2.5b ÷ (CN¥10b - CN¥4.7b) (Based on the trailing twelve months to September 2023).

So, Ningbo Deye Technology Group has an ROCE of 44%. That's a fantastic return and not only that, it outpaces the average of 6.0% earned by companies in a similar industry.

Check out our latest analysis for Ningbo Deye Technology Group

In the above chart we have measured Ningbo Deye Technology Group'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 Ningbo Deye Technology Group for free.

The Trend Of ROCE

We'd be pretty happy with returns on capital like Ningbo Deye Technology Group. Over the past five years, ROCE has remained relatively flat at around 44% and the business has deployed 1,677% more capital into its operations. Now considering ROCE is an attractive 44%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Ningbo Deye Technology Group can keep this up, we'd be very optimistic about its future.

On a side note, Ningbo Deye Technology Group has done well to reduce current liabilities to 45% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously. We'd like to see this trend continue though because as it stands today, thats still a pretty high level.

The Key Takeaway

In short, we'd argue Ningbo Deye Technology Group has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. However, despite the favorable fundamentals, the stock has fallen 56% over the last year, so there might be an opportunity here for astute investors. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

On a final note, we've found 2 warning signs for Ningbo Deye Technology Group that we think you should be aware of.

Ningbo Deye Technology Group is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.