Kaishan Group (SZSE:300257) Might Have The Makings Of A Multi-Bagger

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Kaishan Group (SZSE:300257) and its 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. To calculate this metric for Kaishan Group, this is the formula:

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

0.055 = CN¥566m ÷ (CN¥17b - CN¥6.4b) (Based on the trailing twelve months to September 2024).

So, Kaishan Group has an ROCE of 5.5%. Even though it's in line with the industry average of 5.2%, it's still a low return by itself.

See our latest analysis for Kaishan Group

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

The Trend Of ROCE

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 5.5%. The amount of capital employed has increased too, by 99%. So we're very much inspired by what we're seeing at Kaishan Group thanks to its ability to profitably reinvest capital.

The Bottom Line On Kaishan Group's ROCE

In summary, it's great to see that Kaishan Group can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And since the stock has fallen 14% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

Kaishan Group does have some risks, we noticed 2 warning signs (and 1 which is concerning) we think you should know about.

While Kaishan Group may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.