Return Trends At Konfoong Materials International (SZSE:300666) Aren't Appealing

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Konfoong Materials International (SZSE:300666), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Konfoong Materials International is:

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

0.059 = CN¥335m ÷ (CN¥7.4b - CN¥1.8b) (Based on the trailing twelve months to September 2024).

Therefore, Konfoong Materials International has an ROCE of 5.9%. In absolute terms, that's a low return, but it's much better than the Semiconductor industry average of 4.8%.

See our latest analysis for Konfoong Materials International

In the above chart we have measured Konfoong Materials International's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Konfoong Materials International .

What Can We Tell From Konfoong Materials International's ROCE Trend?

In terms of Konfoong Materials International's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 5.9% for the last five years, and the capital employed within the business has risen 673% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

On a side note, Konfoong Materials International has done well to reduce current liabilities to 24% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Bottom Line On Konfoong Materials International's ROCE

In summary, Konfoong Materials International has simply been reinvesting capital and generating the same low rate of return as before. Yet to long term shareholders the stock has gifted them an incredible 109% return in the last five years, so the market appears to be rosy about its future. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

Konfoong Materials International does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is a bit unpleasant...

While Konfoong Materials International isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.