Himile Mechanical Science and Technology (Shandong) (SZSE:002595) Is Aiming To Keep Up Its Impressive Returns

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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 Himile Mechanical Science and Technology (Shandong)'s (SZSE:002595) trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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 Himile Mechanical Science and Technology (Shandong):

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

0.20 = CN¥2.0b ÷ (CN¥11b - CN¥1.3b) (Based on the trailing twelve months to June 2024).

Thus, Himile Mechanical Science and Technology (Shandong) has an ROCE of 20%. That's a fantastic return and not only that, it outpaces the average of 5.8% earned by companies in a similar industry.

Check out our latest analysis for Himile Mechanical Science and Technology (Shandong)

Above you can see how the current ROCE for Himile Mechanical Science and Technology (Shandong) 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 Himile Mechanical Science and Technology (Shandong) for free.

The Trend Of ROCE

In terms of Himile Mechanical Science and Technology (Shandong)'s history of ROCE, it's quite impressive. The company has employed 117% more capital in the last five years, and the returns on that capital have remained stable at 20%. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

On a side note, Himile Mechanical Science and Technology (Shandong) has done well to reduce current liabilities to 12% 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.

The Bottom Line On Himile Mechanical Science and Technology (Shandong)'s ROCE

In short, we'd argue Himile Mechanical Science and Technology (Shandong) has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. On top of that, the stock has rewarded shareholders with a remarkable 118% return to those who've held over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

On a final note, we've found 1 warning sign for Himile Mechanical Science and Technology (Shandong) that we think you should be aware of.

Himile Mechanical Science and Technology (Shandong) 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.