Sunresin New MaterialsLtd (SZSE:300487) Is Reinvesting To Multiply In Value

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, the ROCE of Sunresin New MaterialsLtd (SZSE:300487) looks attractive right now, so lets see what the trend of returns can tell us.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for Sunresin New MaterialsLtd, this is the formula:

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

0.22 = CN¥934m ÷ (CN¥5.8b - CN¥1.5b) (Based on the trailing twelve months to September 2024).

Thus, Sunresin New MaterialsLtd has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Chemicals industry average of 5.5%.

Check out our latest analysis for Sunresin New MaterialsLtd

Above you can see how the current ROCE for Sunresin New MaterialsLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Sunresin New MaterialsLtd .

What The Trend Of ROCE Can Tell Us

We'd be pretty happy with returns on capital like Sunresin New MaterialsLtd. The company has consistently earned 22% for the last five years, and the capital employed within the business has risen 179% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Sunresin New MaterialsLtd can keep this up, we'd be very optimistic about its future.

The Key Takeaway

In summary, we're delighted to see that Sunresin New MaterialsLtd has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. On top of that, the stock has rewarded shareholders with a remarkable 201% return to those who've held over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

On a final note, we found 2 warning signs for Sunresin New MaterialsLtd (1 is potentially serious) 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.