Shanghai Lonyer Data (SHSE:603003) Has Some Way To Go To Become A Multi-Bagger

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. However, after briefly looking over the numbers, we don't think Shanghai Lonyer Data (SHSE:603003) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Shanghai Lonyer Data:

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

0.0061 = CN¥25m ÷ (CN¥4.8b - CN¥674m) (Based on the trailing twelve months to March 2024).

Thus, Shanghai Lonyer Data has an ROCE of 0.6%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 11%.

View our latest analysis for Shanghai Lonyer Data

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Shanghai Lonyer Data's past further, check out this free graph covering Shanghai Lonyer Data's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

There hasn't been much to report for Shanghai Lonyer Data's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Shanghai Lonyer Data doesn't end up being a multi-bagger in a few years time.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 14% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

In Conclusion...

In a nutshell, Shanghai Lonyer Data has been trudging along with the same returns from the same amount of capital over the last five years. And in the last five years, the stock has given away 55% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Shanghai Lonyer Data has the makings of a multi-bagger.

On a final note, we've found 2 warning signs for Shanghai Lonyer Data that we think you should be aware of.

While Shanghai Lonyer Data 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.