Shanghai Huace Navigation Technology (SZSE:300627) Is Doing The Right Things To Multiply Its Share Price

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Shanghai Huace Navigation Technology's (SZSE:300627) returns on capital, so let's have a look.

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

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. Analysts use this formula to calculate it for Shanghai Huace Navigation Technology:

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

0.13 = CN¥477m ÷ (CN¥4.6b - CN¥1.1b) (Based on the trailing twelve months to September 2024).

Therefore, Shanghai Huace Navigation Technology has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 4.1% generated by the Communications industry.

View our latest analysis for Shanghai Huace Navigation Technology

In the above chart we have measured Shanghai Huace Navigation Technology's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Shanghai Huace Navigation Technology for free.

What Does the ROCE Trend For Shanghai Huace Navigation Technology Tell Us?

The trends we've noticed at Shanghai Huace Navigation Technology are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 13%. The amount of capital employed has increased too, by 255%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From Shanghai Huace Navigation Technology's ROCE

All in all, it's terrific to see that Shanghai Huace Navigation Technology is reaping the rewards from prior investments and is growing its capital base. And a remarkable 358% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Shanghai Huace Navigation Technology can keep these trends up, it could have a bright future ahead.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for 300627 on our platform that is definitely worth checking out.

While Shanghai Huace Navigation Technology 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.