Suzhou Kingswood Education Technology (SZSE:300192) Could Become A Multi-Bagger

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. And in light of that, the trends we're seeing at Suzhou Kingswood Education Technology's (SZSE:300192) look very promising so lets take a look.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Suzhou Kingswood Education Technology is:

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

0.20 = CN¥171m ÷ (CN¥1.2b - CN¥363m) (Based on the trailing twelve months to September 2024).

Therefore, Suzhou Kingswood Education Technology has an ROCE of 20%. That's a fantastic return and not only that, it outpaces the average of 5.6% earned by companies in a similar industry.

View our latest analysis for Suzhou Kingswood Education Technology

In the above chart we have measured Suzhou Kingswood Education Technology's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Suzhou Kingswood Education Technology .

What The Trend Of ROCE Can Tell Us

You'd find it hard not to be impressed with the ROCE trend at Suzhou Kingswood Education Technology. The data shows that returns on capital have increased by 24% over the trailing five years. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, Suzhou Kingswood Education Technology appears to been achieving more with less, since the business is using 30% less capital to run its operation. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

What We Can Learn From Suzhou Kingswood Education Technology's ROCE

From what we've seen above, Suzhou Kingswood Education Technology has managed to increase it's returns on capital all the while reducing it's capital base. Considering the stock has delivered 9.9% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

Like most companies, Suzhou Kingswood Education Technology does come with some risks, and we've found 2 warning signs that you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.