Shanghai Shine-Link International Logistics (SHSE:603648) Has Some Way To Go To Become A Multi-Bagger

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Shanghai Shine-Link International Logistics (SHSE:603648), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Shanghai Shine-Link International Logistics is:

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

0.073 = CN¥149m ÷ (CN¥2.4b - CN¥360m) (Based on the trailing twelve months to September 2024).

Thus, Shanghai Shine-Link International Logistics has an ROCE of 7.3%. In absolute terms, that's a low return but it's around the Logistics industry average of 7.5%.

Check out our latest analysis for Shanghai Shine-Link International Logistics

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Shanghai Shine-Link International Logistics' past further, check out this free graph covering Shanghai Shine-Link International Logistics' past earnings, revenue and cash flow.

What Can We Tell From Shanghai Shine-Link International Logistics' ROCE Trend?

In terms of Shanghai Shine-Link International Logistics' historical ROCE trend, it doesn't exactly demand attention. The company has employed 21% more capital in the last five years, and the returns on that capital have remained stable at 7.3%. 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.

The Key Takeaway

In conclusion, Shanghai Shine-Link International Logistics has been investing more capital into the business, but returns on that capital haven't increased. And investors may be recognizing these trends since the stock has only returned a total of 31% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

If you want to continue researching Shanghai Shine-Link International Logistics, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Shanghai Shine-Link International Logistics 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.