Stock Analysis

Slowing Rates Of Return At COSCO SHIPPING Technology (SZSE:002401) Leave Little Room For Excitement

SZSE:002401
Source: Shutterstock

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 COSCO SHIPPING Technology (SZSE:002401), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What Is It?

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 COSCO SHIPPING Technology:

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

0.093 = CN¥161m ÷ (CN¥2.8b - CN¥1.1b) (Based on the trailing twelve months to March 2024).

Therefore, COSCO SHIPPING Technology has an ROCE of 9.3%. In absolute terms, that's a low return, but it's much better than the IT industry average of 4.0%.

View our latest analysis for COSCO SHIPPING Technology

roce
SZSE:002401 Return on Capital Employed May 25th 2024

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 COSCO SHIPPING Technology has performed in the past in other metrics, you can view this free graph of COSCO SHIPPING Technology's past earnings, revenue and cash flow.

What Does the ROCE Trend For COSCO SHIPPING Technology Tell Us?

The returns on capital haven't changed much for COSCO SHIPPING Technology in recent years. Over the past five years, ROCE has remained relatively flat at around 9.3% and the business has deployed 88% more capital into its operations. 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, COSCO SHIPPING Technology has done well to reduce current liabilities to 38% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

Our Take On COSCO SHIPPING Technology's ROCE

Long story short, while COSCO SHIPPING Technology has been reinvesting its capital, the returns that it's generating haven't increased. Since the stock has gained an impressive 75% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

COSCO SHIPPING Technology does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

While COSCO SHIPPING 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 COSCO SHIPPING 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.

View the Free Analysis

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

About SZSE:002401

COSCO SHIPPING Technology

Researches, develops, and sells software and hardware products in the areas of intelligent transportation system, transportation and shipping informatization, and industrial automation and safety engineering in China and internationally.

Flawless balance sheet with acceptable track record.