Heilongjiang Publishing & Media (SHSE:605577) Has Some Way To Go To Become A Multi-Bagger

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Heilongjiang Publishing & Media (SHSE:605577), we don't think it's current trends fit the mold of a multi-bagger.

What Is 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 Heilongjiang Publishing & Media:

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

0.029 = CN¥137m ÷ (CN¥5.6b - CN¥916m) (Based on the trailing twelve months to September 2024).

Thus, Heilongjiang Publishing & Media has an ROCE of 2.9%. Ultimately, that's a low return and it under-performs the Media industry average of 5.2%.

See our latest analysis for Heilongjiang Publishing & Media

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Heilongjiang Publishing & Media has performed in the past in other metrics, you can view this free graph of Heilongjiang Publishing & Media's past earnings, revenue and cash flow.

The Trend Of ROCE

There are better returns on capital out there than what we're seeing at Heilongjiang Publishing & Media. Over the past five years, ROCE has remained relatively flat at around 2.9% and the business has deployed 42% more capital into its operations. 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

In conclusion, Heilongjiang Publishing & Media has been investing more capital into the business, but returns on that capital haven't increased. Unsurprisingly, the stock has only gained 0.8% over the last three years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you'd like to know about the risks facing Heilongjiang Publishing & Media, we've discovered 2 warning signs that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.