37 Interactive Entertainment Network Technology Group (SZSE:002555) Might Become A Compounding Machine

To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. That's why when we briefly looked at 37 Interactive Entertainment Network Technology Group's (SZSE:002555) ROCE trend, we were very happy with what we saw.

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. The formula for this calculation on 37 Interactive Entertainment Network Technology Group is:

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

0.24 = CN¥3.1b ÷ (CN¥19b - CN¥5.9b) (Based on the trailing twelve months to September 2023).

Thus, 37 Interactive Entertainment Network Technology Group has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Entertainment industry average of 5.0%.

View our latest analysis for 37 Interactive Entertainment Network Technology Group

Above you can see how the current ROCE for 37 Interactive Entertainment Network Technology Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for 37 Interactive Entertainment Network Technology Group .

What Can We Tell From 37 Interactive Entertainment Network Technology Group's ROCE Trend?

37 Interactive Entertainment Network Technology Group deserves to be commended in regards to it's returns. Over the past five years, ROCE has remained relatively flat at around 24% and the business has deployed 92% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If 37 Interactive Entertainment Network Technology Group can keep this up, we'd be very optimistic about its future.

What We Can Learn From 37 Interactive Entertainment Network Technology Group's ROCE

In short, we'd argue 37 Interactive Entertainment Network Technology Group has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And given the stock has only risen 39% over the last five years, we'd suspect the market is beginning to recognize these trends. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

37 Interactive Entertainment Network Technology Group does have some risks though, and we've spotted 1 warning sign for 37 Interactive Entertainment Network Technology Group that you might be interested in.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.