Guangdong Transtek Medical Electronics (SZSE:300562) Has Some Way To Go To Become A Multi-Bagger

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. In light of that, when we looked at Guangdong Transtek Medical Electronics (SZSE:300562) and its ROCE trend, we weren't exactly thrilled.

What Is 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. To calculate this metric for Guangdong Transtek Medical Electronics, this is the formula:

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

0.06 = CN¥64m ÷ (CN¥1.6b - CN¥496m) (Based on the trailing twelve months to September 2024).

Therefore, Guangdong Transtek Medical Electronics has an ROCE of 6.0%. Even though it's in line with the industry average of 5.9%, it's still a low return by itself.

See our latest analysis for Guangdong Transtek Medical Electronics

Above you can see how the current ROCE for Guangdong Transtek Medical Electronics 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 Guangdong Transtek Medical Electronics .

How Are Returns Trending?

The returns on capital haven't changed much for Guangdong Transtek Medical Electronics in recent years. The company has employed 91% more capital in the last five years, and the returns on that capital have remained stable at 6.0%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

In Conclusion...

In summary, Guangdong Transtek Medical Electronics has simply been reinvesting capital and generating the same low rate of return as before. And with the stock having returned a mere 14% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you want to know some of the risks facing Guangdong Transtek Medical Electronics we've found 2 warning signs (1 is concerning!) that you should be aware of before investing here.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.