Return Trends At Grandblue Environment (SHSE:600323) Aren't Appealing

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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 Grandblue Environment (SHSE:600323), we don't think it's current trends fit the mold of a multi-bagger.

What Is 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 Grandblue Environment is:

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

0.081 = CN¥2.2b ÷ (CN¥37b - CN¥9.8b) (Based on the trailing twelve months to March 2024).

Therefore, Grandblue Environment has an ROCE of 8.1%. In absolute terms, that's a low return, but it's much better than the Water Utilities industry average of 5.4%.

View our latest analysis for Grandblue Environment

Above you can see how the current ROCE for Grandblue Environment compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Grandblue Environment .

How Are Returns Trending?

The returns on capital haven't changed much for Grandblue Environment in recent years. Over the past five years, ROCE has remained relatively flat at around 8.1% and the business has deployed 103% 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.

The Bottom Line On Grandblue Environment's ROCE

In summary, Grandblue Environment has simply been reinvesting capital and generating the same low rate of return as before. And with the stock having returned a mere 28% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you'd like to know about the risks facing Grandblue Environment, we've discovered 1 warning sign that you should be aware of.

While Grandblue Environment 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.