Investors Met With Slowing Returns on Capital At Shanghai MicroPort Endovascular MedTech (SHSE:688016)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. So, when we ran our eye over Shanghai MicroPort Endovascular MedTech's (SHSE:688016) trend of ROCE, we liked what we saw.

Understanding Return On Capital Employed (ROCE)

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 Shanghai MicroPort Endovascular MedTech is:

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

0.15 = CN¥599m ÷ (CN¥4.6b - CN¥514m) (Based on the trailing twelve months to September 2024).

So, Shanghai MicroPort Endovascular MedTech has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 5.9% generated by the Medical Equipment industry.

Check out our latest analysis for Shanghai MicroPort Endovascular MedTech

Above you can see how the current ROCE for Shanghai MicroPort Endovascular MedTech 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 Shanghai MicroPort Endovascular MedTech .

What Does the ROCE Trend For Shanghai MicroPort Endovascular MedTech Tell Us?

While the current returns on capital are decent, they haven't changed much. The company has employed 284% more capital in the last five years, and the returns on that capital have remained stable at 15%. Since 15% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line

In the end, Shanghai MicroPort Endovascular MedTech has proven its ability to adequately reinvest capital at good rates of return. And given the stock has only risen 30% over the last five years, we'd suspect the market is beginning to recognize these trends. So because of the trends we're seeing, we'd recommend looking further into this stock to see if it has the makings of a multi-bagger.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Shanghai MicroPort Endovascular MedTech (of which 1 shouldn't be ignored!) that you should know about.

While Shanghai MicroPort Endovascular MedTech 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.