MCLON JEWELLERYLtd (SZSE:300945) May Have Issues Allocating Its Capital
What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. However, after briefly looking over the numbers, we don't think MCLON JEWELLERYLtd (SZSE:300945) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
Return On Capital Employed (ROCE): What Is It?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for MCLON JEWELLERYLtd, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.047 = CN¥76m ÷ (CN¥1.8b - CN¥190m) (Based on the trailing twelve months to September 2024).
Thus, MCLON JEWELLERYLtd has an ROCE of 4.7%. Ultimately, that's a low return and it under-performs the Luxury industry average of 6.5%.
Check out our latest analysis for MCLON JEWELLERYLtd
Above you can see how the current ROCE for MCLON JEWELLERYLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for MCLON JEWELLERYLtd .
What Does the ROCE Trend For MCLON JEWELLERYLtd Tell Us?
In terms of MCLON JEWELLERYLtd's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 17%, but since then they've fallen to 4.7%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.
The Bottom Line
In summary, despite lower returns in the short term, we're encouraged to see that MCLON JEWELLERYLtd is reinvesting for growth and has higher sales as a result. These growth trends haven't led to growth returns though, since the stock has fallen 46% over the last three years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.
While MCLON JEWELLERYLtd 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 300945 on our platform.
While MCLON JEWELLERYLtd 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.
About SZSE:300945
Excellent balance sheet with proven track record.