Hubei Chutian Smart CommunicationLtd (SHSE:600035) Has More To Do To Multiply In Value Going Forward

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. 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 Hubei Chutian Smart CommunicationLtd (SHSE:600035) 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 Hubei Chutian Smart CommunicationLtd is:

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

0.09 = CN¥1.4b ÷ (CN¥20b - CN¥4.9b) (Based on the trailing twelve months to March 2024).

So, Hubei Chutian Smart CommunicationLtd has an ROCE of 9.0%. On its own that's a low return, but compared to the average of 5.3% generated by the Infrastructure industry, it's much better.

See our latest analysis for Hubei Chutian Smart CommunicationLtd

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

How Are Returns Trending?

The returns on capital haven't changed much for Hubei Chutian Smart CommunicationLtd in recent years. Over the past five years, ROCE has remained relatively flat at around 9.0% and the business has deployed 77% more capital into its operations. 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...

As we've seen above, Hubei Chutian Smart CommunicationLtd's returns on capital haven't increased but it is reinvesting in the business. Since the stock has gained an impressive 68% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

On a separate note, we've found 2 warning signs for Hubei Chutian Smart CommunicationLtd you'll probably want to know about.

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.

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