Returns Are Gaining Momentum At KEDE Numerical Control (SHSE:688305)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, KEDE Numerical Control (SHSE:688305) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for KEDE Numerical Control:

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

0.059 = CN¥108m ÷ (CN¥2.2b - CN¥322m) (Based on the trailing twelve months to June 2024).

So, KEDE Numerical Control has an ROCE of 5.9%. In absolute terms, that's a low return but it's around the Machinery industry average of 5.5%.

Check out our latest analysis for KEDE Numerical Control

Above you can see how the current ROCE for KEDE Numerical Control compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for KEDE Numerical Control .

The Trend Of ROCE

KEDE Numerical Control has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 5.9% on its capital. In addition to that, KEDE Numerical Control is employing 266% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

What We Can Learn From KEDE Numerical Control's ROCE

In summary, it's great to see that KEDE Numerical Control has managed to break into profitability and is continuing to reinvest in its business. Astute investors may have an opportunity here because the stock has declined 39% in the last three years. With that in mind, we believe the promising trends warrant this stock for further investigation.

One more thing: We've identified 2 warning signs with KEDE Numerical Control (at least 1 which shouldn't be ignored) , and understanding these would certainly be useful.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.