We Think Shenzhen Sinexcel ElectricLtd (SZSE:300693) Might Have The DNA Of A Multi-Bagger

If you're looking for a multi-bagger, there's a few things to 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. Speaking of which, we noticed some great changes in Shenzhen Sinexcel ElectricLtd's (SZSE:300693) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Shenzhen Sinexcel ElectricLtd is:

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

0.25 = CN¥426m ÷ (CN¥3.4b - CN¥1.7b) (Based on the trailing twelve months to June 2024).

Thus, Shenzhen Sinexcel ElectricLtd has an ROCE of 25%. That's a fantastic return and not only that, it outpaces the average of 5.9% earned by companies in a similar industry.

See our latest analysis for Shenzhen Sinexcel ElectricLtd

Above you can see how the current ROCE for Shenzhen Sinexcel ElectricLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Shenzhen Sinexcel ElectricLtd .

What Does the ROCE Trend For Shenzhen Sinexcel ElectricLtd Tell Us?

We like the trends that we're seeing from Shenzhen Sinexcel ElectricLtd. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 25%. Basically the business is earning more per dollar of capital invested and in addition to that, 181% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 50% of its operations, which isn't ideal. And with current liabilities at those levels, that's pretty high.

The Bottom Line On Shenzhen Sinexcel ElectricLtd's ROCE

In summary, it's great to see that Shenzhen Sinexcel ElectricLtd 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 a remarkable 378% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing: We've identified 2 warning signs with Shenzhen Sinexcel ElectricLtd (at least 1 which is potentially serious) , and understanding them would certainly be useful.

Shenzhen Sinexcel ElectricLtd 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.