Guangzhou Zhujiang Brewery (SZSE:002461) Might Have The Makings Of A Multi-Bagger

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. So when we looked at Guangzhou Zhujiang Brewery (SZSE:002461) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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 Guangzhou Zhujiang Brewery is:

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

0.043 = CN¥474m ÷ (CN¥14b - CN¥3.0b) (Based on the trailing twelve months to March 2024).

So, Guangzhou Zhujiang Brewery has an ROCE of 4.3%. In absolute terms, that's a low return and it also under-performs the Beverage industry average of 17%.

Check out our latest analysis for Guangzhou Zhujiang Brewery

Above you can see how the current ROCE for Guangzhou Zhujiang Brewery 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 Guangzhou Zhujiang Brewery .

What Does the ROCE Trend For Guangzhou Zhujiang Brewery Tell Us?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 309% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

In Conclusion...

In summary, we're delighted to see that Guangzhou Zhujiang Brewery has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Considering the stock has delivered 40% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

Guangzhou Zhujiang Brewery does have some risks though, and we've spotted 1 warning sign for Guangzhou Zhujiang Brewery that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.