Mingchen HealthLtd (SZSE:002919) Has More To Do To Multiply In Value Going Forward

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. Although, when we looked at Mingchen HealthLtd (SZSE:002919), it didn't seem to tick all of these boxes.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Mingchen HealthLtd:

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

0.038 = CN¥34m ÷ (CN¥1.2b - CN¥323m) (Based on the trailing twelve months to September 2024).

So, Mingchen HealthLtd has an ROCE of 3.8%. Ultimately, that's a low return and it under-performs the Personal Products industry average of 6.6%.

View our latest analysis for Mingchen HealthLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Mingchen HealthLtd's ROCE against it's prior returns. If you're interested in investigating Mingchen HealthLtd's past further, check out this free graph covering Mingchen HealthLtd's past earnings, revenue and cash flow.

What Does the ROCE Trend For Mingchen HealthLtd Tell Us?

In terms of Mingchen HealthLtd's historical ROCE trend, it doesn't exactly demand attention. Over the past five years, ROCE has remained relatively flat at around 3.8% and the business has deployed 56% more capital into its operations. 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.

Our Take On Mingchen HealthLtd's ROCE

Long story short, while Mingchen HealthLtd has been reinvesting its capital, the returns that it's generating haven't increased. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 191% gain to shareholders who have held over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Mingchen HealthLtd does have some risks though, and we've spotted 3 warning signs for Mingchen HealthLtd 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.

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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.