Zhejiang Weixing New Building Materials (SZSE:002372) Might Become A Compounding Machine

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at Zhejiang Weixing New Building Materials' (SZSE:002372) ROCE trend, we were very happy with what we saw.

What Is 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. The formula for this calculation on Zhejiang Weixing New Building Materials is:

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

0.25 = CN¥1.5b ÷ (CN¥7.2b - CN¥1.2b) (Based on the trailing twelve months to March 2024).

Therefore, Zhejiang Weixing New Building Materials has an ROCE of 25%. That's a fantastic return and not only that, it outpaces the average of 7.4% earned by companies in a similar industry.

View our latest analysis for Zhejiang Weixing New Building Materials

In the above chart we have measured Zhejiang Weixing New Building Materials' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Zhejiang Weixing New Building Materials .

What The Trend Of ROCE Can Tell Us

It's hard not to be impressed by Zhejiang Weixing New Building Materials' returns on capital. The company has employed 55% more capital in the last five years, and the returns on that capital have remained stable at 25%. Now considering ROCE is an attractive 25%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Zhejiang Weixing New Building Materials can keep this up, we'd be very optimistic about its future.

What We Can Learn From Zhejiang Weixing New Building Materials' ROCE

In short, we'd argue Zhejiang Weixing New Building Materials has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. In light of this, the stock has only gained 20% over the last five years for shareholders who have owned the stock in this period. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

One more thing, we've spotted 1 warning sign facing Zhejiang Weixing New Building Materials that you might find interesting.

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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.