Shenzhen Liande Automation Equipmentltd (SZSE:300545) Has Some Way To Go To Become A Multi-Bagger

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. That's why when we briefly looked at Shenzhen Liande Automation Equipmentltd's (SZSE:300545) ROCE trend, we were pretty happy with what we saw.

Understanding 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. To calculate this metric for Shenzhen Liande Automation Equipmentltd, this is the formula:

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

0.13 = CN¥280m ÷ (CN¥3.1b - CN¥974m) (Based on the trailing twelve months to September 2024).

So, Shenzhen Liande Automation Equipmentltd has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 5.2% it's much better.

See our latest analysis for Shenzhen Liande Automation Equipmentltd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Shenzhen Liande Automation Equipmentltd's ROCE against it's prior returns. If you're interested in investigating Shenzhen Liande Automation Equipmentltd's past further, check out this free graph covering Shenzhen Liande Automation Equipmentltd's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 13% and the business has deployed 222% more capital into its operations. Since 13% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

On a side note, Shenzhen Liande Automation Equipmentltd has done well to reduce current liabilities to 32% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Key Takeaway

The main thing to remember is that Shenzhen Liande Automation Equipmentltd has proven its ability to continually reinvest at respectable rates of return. However, over the last five years, the stock has only delivered a 25% return to shareholders who held over that period. So because of the trends we're seeing, we'd recommend looking further into this stock to see if it has the makings of a multi-bagger.

While Shenzhen Liande Automation Equipmentltd doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for 300545 on our platform.

While Shenzhen Liande Automation Equipmentltd 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.