Minfeng Special PaperLtd (SHSE:600235) Is Doing The Right Things To Multiply Its Share Price

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Minfeng Special PaperLtd (SHSE:600235) so let's look a bit deeper.

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 Minfeng Special PaperLtd, this is the formula:

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

0.048 = CN¥91m ÷ (CN¥2.8b - CN¥884m) (Based on the trailing twelve months to June 2024).

Thus, Minfeng Special PaperLtd has an ROCE of 4.8%. In absolute terms, that's a low return and it also under-performs the Forestry industry average of 6.5%.

See our latest analysis for Minfeng Special PaperLtd

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Minfeng Special PaperLtd's past further, check out this free graph covering Minfeng Special PaperLtd's past earnings, revenue and cash flow.

What Does the ROCE Trend For Minfeng Special PaperLtd Tell Us?

We're delighted to see that Minfeng Special PaperLtd is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 4.8% which is a sight for sore eyes. In addition to that, Minfeng Special PaperLtd is employing 47% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

In Conclusion...

In summary, it's great to see that Minfeng Special PaperLtd has managed to break into profitability and is continuing to reinvest in its business. Since the stock has only returned 13% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

Minfeng Special PaperLtd does have some risks, we noticed 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.

While Minfeng Special PaperLtd isn't earning the highest return, check out this free list of companies that are 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.