BlueSword Intelligent Technology (SHSE:688557) Is Reinvesting At Lower Rates Of Return

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at BlueSword Intelligent Technology (SHSE:688557) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is 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. Analysts use this formula to calculate it for BlueSword Intelligent Technology:

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

0.081 = CN¥94m ÷ (CN¥1.8b - CN¥634m) (Based on the trailing twelve months to September 2024).

So, BlueSword Intelligent Technology has an ROCE of 8.1%. In absolute terms, that's a low return, but it's much better than the Machinery industry average of 5.2%.

See our latest analysis for BlueSword Intelligent Technology

Above you can see how the current ROCE for BlueSword Intelligent Technology compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering BlueSword Intelligent Technology for free.

The Trend Of ROCE

On the surface, the trend of ROCE at BlueSword Intelligent Technology doesn't inspire confidence. Over the last five years, returns on capital have decreased to 8.1% from 21% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line On BlueSword Intelligent Technology's ROCE

In summary, BlueSword Intelligent Technology is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Additionally, the stock's total return to shareholders over the last three years has been flat, which isn't too surprising. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

If you're still interested in BlueSword Intelligent Technology it's worth checking out our FREE intrinsic value approximation for 688557 to see if it's trading at an attractive price in other respects.

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.