Investors Met With Slowing Returns on Capital At China Science Publishing & Media (SHSE:601858)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating China Science Publishing & Media (SHSE:601858), we don't think it's current trends fit the mold of a multi-bagger.

What Is 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. Analysts use this formula to calculate it for China Science Publishing & Media:

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

0.069 = CN¥355m ÷ (CN¥6.6b - CN¥1.4b) (Based on the trailing twelve months to September 2023).

Thus, China Science Publishing & Media has an ROCE of 6.9%. In absolute terms, that's a low return, but it's much better than the Media industry average of 4.3%.

Check out our latest analysis for China Science Publishing & Media

Above you can see how the current ROCE for China Science Publishing & Media 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 China Science Publishing & Media .

So How Is China Science Publishing & Media's ROCE Trending?

There are better returns on capital out there than what we're seeing at China Science Publishing & Media. The company has consistently earned 6.9% for the last five years, and the capital employed within the business has risen 47% in that time. 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.

The Key Takeaway

Long story short, while China Science Publishing & Media 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 136% 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.

Like most companies, China Science Publishing & Media does come with some risks, and we've found 1 warning sign that you should be aware of.

While China Science Publishing & Media may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.