Guangzhou Haige Communications Group's (SZSE:002465) Returns Have Hit A Wall

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Guangzhou Haige Communications Group (SZSE:002465) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Guangzhou Haige Communications Group is:

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

0.039 = CN¥553m ÷ (CN¥19b - CN¥5.2b) (Based on the trailing twelve months to March 2024).

So, Guangzhou Haige Communications Group has an ROCE of 3.9%. Even though it's in line with the industry average of 3.9%, it's still a low return by itself.

View our latest analysis for Guangzhou Haige Communications Group

In the above chart we have measured Guangzhou Haige Communications Group'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 Guangzhou Haige Communications Group .

How Are Returns Trending?

The returns on capital haven't changed much for Guangzhou Haige Communications Group in recent years. The company has consistently earned 3.9% for the last five years, and the capital employed within the business has risen 50% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

In Conclusion...

In summary, Guangzhou Haige Communications Group has simply been reinvesting capital and generating the same low rate of return as before. And with the stock having returned a mere 23% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

One more thing to note, we've identified 2 warning signs with Guangzhou Haige Communications Group and understanding them should be part of your investment process.

While Guangzhou Haige Communications Group 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.

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