Huaxia Eye Hospital GroupLtd (SZSE:301267) Has Some Way To Go To Become A Multi-Bagger

To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. That's why when we briefly looked at Huaxia Eye Hospital GroupLtd's (SZSE:301267) ROCE trend, we were pretty happy with 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. Analysts use this formula to calculate it for Huaxia Eye Hospital GroupLtd:

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

0.13 = CN¥875m ÷ (CN¥7.5b - CN¥975m) (Based on the trailing twelve months to March 2024).

So, Huaxia Eye Hospital GroupLtd has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Healthcare industry average of 9.5% it's much better.

See our latest analysis for Huaxia Eye Hospital GroupLtd

In the above chart we have measured Huaxia Eye Hospital GroupLtd'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 Huaxia Eye Hospital GroupLtd .

So How Is Huaxia Eye Hospital GroupLtd's ROCE Trending?

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 13% and the business has deployed 365% more capital into its operations. 13% is a pretty standard return, and it provides some comfort knowing that Huaxia Eye Hospital GroupLtd has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 13% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk.

In Conclusion...

The main thing to remember is that Huaxia Eye Hospital GroupLtd has proven its ability to continually reinvest at respectable rates of return. Yet over the last year the stock has declined 47%, so the decline might provide an opening. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

Huaxia Eye Hospital GroupLtd could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 301267 on our platform quite valuable.

While Huaxia Eye Hospital GroupLtd 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.