Sunshine Global CircuitsLtd (SZSE:300739) Could Be Struggling To Allocate Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. Having said that, from a first glance at Sunshine Global CircuitsLtd (SZSE:300739) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Sunshine Global CircuitsLtd is:

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

0.024 = CN¥68m ÷ (CN¥3.4b - CN¥596m) (Based on the trailing twelve months to September 2024).

Thus, Sunshine Global CircuitsLtd has an ROCE of 2.4%. Ultimately, that's a low return and it under-performs the Electronic industry average of 5.5%.

View our latest analysis for Sunshine Global CircuitsLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Sunshine Global CircuitsLtd's ROCE against it's prior returns. If you'd like to look at how Sunshine Global CircuitsLtd has performed in the past in other metrics, you can view this free graph of Sunshine Global CircuitsLtd's past earnings, revenue and cash flow.

What Can We Tell From Sunshine Global CircuitsLtd's ROCE Trend?

When we looked at the ROCE trend at Sunshine Global CircuitsLtd, we didn't gain much confidence. Around five years ago the returns on capital were 9.2%, but since then they've fallen to 2.4%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

The Key Takeaway

To conclude, we've found that Sunshine Global CircuitsLtd is reinvesting in the business, but returns have been falling. Unsurprisingly, the stock has only gained 4.5% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

Sunshine Global CircuitsLtd does have some risks, we noticed 6 warning signs (and 2 which are a bit unpleasant) we think you should know about.

While Sunshine Global CircuitsLtd 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.

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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.