The Returns On Capital At Suntak TechnologyLtd (SZSE:002815) Don't Inspire Confidence

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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 investigating Suntak TechnologyLtd (SZSE:002815), we don't think it's current trends fit the mold of a multi-bagger.

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 Suntak TechnologyLtd is:

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

0.053 = CN¥514m ÷ (CN¥12b - CN¥2.6b) (Based on the trailing twelve months to March 2024).

Thus, Suntak TechnologyLtd has an ROCE of 5.3%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.2%.

View our latest analysis for Suntak TechnologyLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Suntak TechnologyLtd's ROCE against it's prior returns. If you're interested in investigating Suntak TechnologyLtd's past further, check out this free graph covering Suntak TechnologyLtd's past earnings, revenue and cash flow.

What Can We Tell From Suntak TechnologyLtd's ROCE Trend?

On the surface, the trend of ROCE at Suntak TechnologyLtd doesn't inspire confidence. To be more specific, ROCE has fallen from 16% over the last five years. However it looks like Suntak TechnologyLtd might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Key Takeaway

In summary, Suntak TechnologyLtd is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors appear hesitant that the trends will pick up because the stock has fallen 30% in the last five years. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

On a final note, we've found 2 warning signs for Suntak TechnologyLtd that we think you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.