Jiangsu Tongda Power TechnologyLtd (SZSE:002576) Is Doing The Right Things To Multiply Its Share Price

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Jiangsu Tongda Power TechnologyLtd (SZSE:002576) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Jiangsu Tongda Power TechnologyLtd:

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

0.059 = CN¥72m ÷ (CN¥1.7b - CN¥497m) (Based on the trailing twelve months to March 2024).

Therefore, Jiangsu Tongda Power TechnologyLtd has an ROCE of 5.9%. Even though it's in line with the industry average of 6.0%, it's still a low return by itself.

Check out our latest analysis for Jiangsu Tongda Power TechnologyLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Jiangsu Tongda Power TechnologyLtd's ROCE against it's prior returns. If you'd like to look at how Jiangsu Tongda Power TechnologyLtd has performed in the past in other metrics, you can view this free graph of Jiangsu Tongda Power TechnologyLtd's past earnings, revenue and cash flow.

How Are Returns Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 5.9%. The amount of capital employed has increased too, by 40%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line

All in all, it's terrific to see that Jiangsu Tongda Power TechnologyLtd is reaping the rewards from prior investments and is growing its capital base. Considering the stock has delivered 4.6% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

While Jiangsu Tongda Power TechnologyLtd looks impressive, no company is worth an infinite price. The intrinsic value infographic for 002576 helps visualize whether it is currently trading for a fair price.

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.

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