Nanjing Tanker (SHSE:601975) Might Have The Makings Of A Multi-Bagger

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Nanjing Tanker (SHSE:601975) and its trend of ROCE, we really 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 Nanjing Tanker is:

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

0.18 = CN¥2.0b ÷ (CN¥12b - CN¥1.1b) (Based on the trailing twelve months to March 2024).

So, Nanjing Tanker has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 11% generated by the Oil and Gas industry.

See our latest analysis for Nanjing Tanker

In the above chart we have measured Nanjing Tanker's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Nanjing Tanker for free.

The Trend Of ROCE

The trends we've noticed at Nanjing Tanker are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 18%. Basically the business is earning more per dollar of capital invested and in addition to that, 73% more capital is being employed now too. So we're very much inspired by what we're seeing at Nanjing Tanker thanks to its ability to profitably reinvest capital.

Our Take On Nanjing Tanker's ROCE

To sum it up, Nanjing Tanker has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has only returned 19% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for 601975 on our platform that is definitely worth checking out.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.