Investors Met With Slowing Returns on Capital At Motic (Xiamen) Electric GroupLtd (SZSE:300341)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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 Motic (Xiamen) Electric GroupLtd's (SZSE:300341) trend of ROCE, we liked what we saw.

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. The formula for this calculation on Motic (Xiamen) Electric GroupLtd is:

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

0.15 = CN¥266m ÷ (CN¥2.3b - CN¥460m) (Based on the trailing twelve months to September 2023).

So, Motic (Xiamen) Electric GroupLtd has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Electrical industry average of 6.5% it's much better.

See our latest analysis for Motic (Xiamen) Electric GroupLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Motic (Xiamen) Electric GroupLtd's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Motic (Xiamen) Electric GroupLtd.

What Does the ROCE Trend For Motic (Xiamen) Electric GroupLtd Tell Us?

While the returns on capital are good, they haven't moved much. The company has employed 66% more capital in the last five years, and the returns on that capital have remained stable at 15%. 15% is a pretty standard return, and it provides some comfort knowing that Motic (Xiamen) Electric GroupLtd has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

Our Take On Motic (Xiamen) Electric GroupLtd's ROCE

In the end, Motic (Xiamen) Electric GroupLtd has proven its ability to adequately reinvest capital at good rates of return. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. 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 Motic (Xiamen) Electric GroupLtd that we think you should be aware of.

While Motic (Xiamen) Electric GroupLtd 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.