Stock Analysis

China Transinfo Technology (SZSE:002373) Will Be Hoping To Turn Its Returns On Capital Around

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What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating China Transinfo Technology (SZSE:002373), we don't think it's current trends fit the mold of a multi-bagger.

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. To calculate this metric for China Transinfo Technology, this is the formula:

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

0.0087 = CN¥115m ÷ (CN¥19b - CN¥5.5b) (Based on the trailing twelve months to March 2024).

So, China Transinfo Technology has an ROCE of 0.9%. In absolute terms, that's a low return and it also under-performs the IT industry average of 4.0%.

View our latest analysis for China Transinfo Technology

SZSE:002373 Return on Capital Employed May 25th 2024

Above you can see how the current ROCE for China Transinfo Technology compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for China Transinfo Technology .

What Does the ROCE Trend For China Transinfo Technology Tell Us?

In terms of China Transinfo Technology's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 9.2% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line On China Transinfo Technology's ROCE

Bringing it all together, while we're somewhat encouraged by China Transinfo Technology's reinvestment in its own business, we're aware that returns are shrinking. Since the stock has declined 51% over the last five years, investors may not be too optimistic on this trend improving either. 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.

If you're still interested in China Transinfo Technology it's worth checking out our FREE intrinsic value approximation for 002373 to see if it's trading at an attractive price in other respects.

While China Transinfo Technology 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.

Valuation is complex, but we're helping make it simple.

Find out whether China Transinfo Technology is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.