Shenzhen Maxonic Automation Control (SZSE:300112) Has Some Way To Go To Become A Multi-Bagger

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Shenzhen Maxonic Automation Control (SZSE:300112), it didn't seem to tick all of these boxes.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Shenzhen Maxonic Automation Control:

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

0.06 = CN¥87m ÷ (CN¥1.7b - CN¥275m) (Based on the trailing twelve months to March 2024).

Thus, Shenzhen Maxonic Automation Control has an ROCE of 6.0%. On its own that's a low return on capital but it's in line with the industry's average returns of 6.0%.

View our latest analysis for Shenzhen Maxonic Automation Control

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Shenzhen Maxonic Automation Control has performed in the past in other metrics, you can view this free graph of Shenzhen Maxonic Automation Control's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

In terms of Shenzhen Maxonic Automation Control's historical ROCE trend, it doesn't exactly demand attention. Over the past five years, ROCE has remained relatively flat at around 6.0% and the business has deployed 41% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line On Shenzhen Maxonic Automation Control's ROCE

In summary, Shenzhen Maxonic Automation Control has simply been reinvesting capital and generating the same low rate of return as before. And with the stock having returned a mere 10% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

One more thing: We've identified 4 warning signs with Shenzhen Maxonic Automation Control (at least 1 which makes us a bit uncomfortable) , and understanding these would certainly be useful.

While Shenzhen Maxonic Automation Control isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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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