Weihai Guangwei Composites' (SZSE:300699) Returns Have Hit A Wall

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. So, when we ran our eye over Weihai Guangwei Composites' (SZSE:300699) trend of ROCE, we liked what we saw.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for Weihai Guangwei Composites, this is the formula:

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

0.14 = CN¥929m ÷ (CN¥7.8b - CN¥1.1b) (Based on the trailing twelve months to September 2024).

So, Weihai Guangwei Composites has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 5.5% generated by the Chemicals industry.

See our latest analysis for Weihai Guangwei Composites

Above you can see how the current ROCE for Weihai Guangwei Composites 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 Weihai Guangwei Composites .

What Can We Tell From Weihai Guangwei Composites' ROCE Trend?

While the current returns on capital are decent, they haven't changed much. The company has employed 91% more capital in the last five years, and the returns on that capital have remained stable at 14%. 14% is a pretty standard return, and it provides some comfort knowing that Weihai Guangwei Composites 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.

The Key Takeaway

To sum it up, Weihai Guangwei Composites has simply been reinvesting capital steadily, at those decent rates of return. And given the stock has only risen 13% over the last five years, we'd suspect the market is beginning to recognize these trends. So to determine if Weihai Guangwei Composites is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

On a final note, we found 2 warning signs for Weihai Guangwei Composites (1 is concerning) you should be aware of.

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.