The Returns At DuZhe Publish&MediaLtd (SHSE:603999) Aren't Growing

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. However, after briefly looking over the numbers, we don't think DuZhe Publish&MediaLtd (SHSE:603999) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. Analysts use this formula to calculate it for DuZhe Publish&MediaLtd:

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

0.019 = CN¥40m ÷ (CN¥2.5b - CN¥406m) (Based on the trailing twelve months to June 2024).

Therefore, DuZhe Publish&MediaLtd has an ROCE of 1.9%. In absolute terms, that's a low return and it also under-performs the Media industry average of 3.8%.

Check out our latest analysis for DuZhe Publish&MediaLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for DuZhe Publish&MediaLtd's ROCE against it's prior returns. If you'd like to look at how DuZhe Publish&MediaLtd has performed in the past in other metrics, you can view this free graph of DuZhe Publish&MediaLtd's past earnings, revenue and cash flow.

How Are Returns Trending?

Things have been pretty stable at DuZhe Publish&MediaLtd, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect DuZhe Publish&MediaLtd to be a multi-bagger going forward.

Our Take On DuZhe Publish&MediaLtd's ROCE

In summary, DuZhe Publish&MediaLtd isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

Like most companies, DuZhe Publish&MediaLtd does come with some risks, and we've found 1 warning sign that you should be aware of.

While DuZhe Publish&MediaLtd 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.