To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. Speaking of which, we noticed some great changes in APT Medical's (SHSE:688617) returns on capital, so let's have a look.
Understanding 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. To calculate this metric for APT Medical, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.26 = CN¥562m ÷ (CN¥2.6b - CN¥486m) (Based on the trailing twelve months to March 2024).
Therefore, APT Medical has an ROCE of 26%. That's a fantastic return and not only that, it outpaces the average of 6.4% earned by companies in a similar industry.
See our latest analysis for APT Medical
In the above chart we have measured APT Medical'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 APT Medical for free.
What Can We Tell From APT Medical's ROCE Trend?
The trends we've noticed at APT Medical are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 26%. The amount of capital employed has increased too, by 558%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
The Bottom Line
All in all, it's terrific to see that APT Medical is reaping the rewards from prior investments and is growing its capital base. Considering the stock has delivered 14% to its stockholders over the last three 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.
APT Medical does have some risks though, and we've spotted 1 warning sign for APT Medical that you might be interested in.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
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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.
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About SHSE:688617
APT Medical
Engages in the research, development, manufacturing, and supply of electrophysiology and vascular interventional medical devices in China.
Exceptional growth potential with flawless balance sheet.
