Beijing XIAOCHENG Technology Stock (SZSE:300139) Might Have The Makings Of A Multi-Bagger

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. Speaking of which, we noticed some great changes in Beijing XIAOCHENG Technology Stock's (SZSE:300139) returns on capital, so let's have a look.

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. To calculate this metric for Beijing XIAOCHENG Technology Stock, this is the formula:

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

0.00011 = CN¥128k ÷ (CN¥1.2b - CN¥85m) (Based on the trailing twelve months to September 2023).

So, Beijing XIAOCHENG Technology Stock has an ROCE of 0.01%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 5.3%.

Check out our latest analysis for Beijing XIAOCHENG Technology Stock

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

What The Trend Of ROCE Can Tell Us

We're delighted to see that Beijing XIAOCHENG Technology Stock is reaping rewards from its investments and has now broken into profitability. The company now earns 0.01% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by Beijing XIAOCHENG Technology Stock has remained flat over the period. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. Because in the end, a business can only get so efficient.

The Bottom Line

To sum it up, Beijing XIAOCHENG Technology Stock is collecting higher returns from the same amount of capital, and that's impressive. Given the stock has declined 30% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for 300139 on our platform that is definitely worth checking out.

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.