Shareholders Are Optimistic That Wuliangye YibinLtd (SZSE:000858) Will Multiply In Value

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over Wuliangye YibinLtd's (SZSE:000858) trend of ROCE, we really liked what we saw.

Understanding 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. To calculate this metric for Wuliangye YibinLtd, this is the formula:

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

0.28 = CN¥41b ÷ (CN¥181b - CN¥32b) (Based on the trailing twelve months to March 2024).

So, Wuliangye YibinLtd has an ROCE of 28%. In absolute terms that's a great return and it's even better than the Beverage industry average of 17%.

See our latest analysis for Wuliangye YibinLtd

In the above chart we have measured Wuliangye YibinLtd's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Wuliangye YibinLtd .

The Trend Of ROCE

It's hard not to be impressed by Wuliangye YibinLtd's returns on capital. Over the past five years, ROCE has remained relatively flat at around 28% and the business has deployed 107% more capital into its operations. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

The Bottom Line

In summary, we're delighted to see that Wuliangye YibinLtd has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And the stock has followed suit returning a meaningful 67% to shareholders over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for 000858 on our platform that is definitely worth checking out.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.