Ningbo Zhoushan Port's (SHSE:601018) Returns Have Hit A Wall

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Ningbo Zhoushan Port (SHSE:601018) and its ROCE trend, we weren't exactly thrilled.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Ningbo Zhoushan Port:

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

0.069 = CN¥6.2b ÷ (CN¥113b - CN¥23b) (Based on the trailing twelve months to December 2023).

Therefore, Ningbo Zhoushan Port has an ROCE of 6.9%. On its own that's a low return, but compared to the average of 5.2% generated by the Infrastructure industry, it's much better.

Check out our latest analysis for Ningbo Zhoushan Port

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

What The Trend Of ROCE Can Tell Us

There are better returns on capital out there than what we're seeing at Ningbo Zhoushan Port. The company has consistently earned 6.9% for the last five years, and the capital employed within the business has risen 80% 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 conclusion, Ningbo Zhoushan Port has been investing more capital into the business, but returns on that capital haven't increased. And in the last five years, the stock has given away 10% so the market doesn't look too hopeful on these trends strengthening any time soon. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

Ningbo Zhoushan Port does have some risks though, and we've spotted 1 warning sign for Ningbo Zhoushan Port that you might be interested in.

While Ningbo Zhoushan Port 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.