Jiangsu New Energy Development (SHSE:603693) Has Some Way To Go To Become A Multi-Bagger

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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 briefly looking over the numbers, we don't think Jiangsu New Energy Development (SHSE:603693) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Jiangsu New Energy Development:

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

0.061 = CN¥901m ÷ (CN¥17b - CN¥2.1b) (Based on the trailing twelve months to March 2024).

Therefore, Jiangsu New Energy Development has an ROCE of 6.1%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.9%.

View our latest analysis for Jiangsu New Energy Development

In the above chart we have measured Jiangsu New Energy Development's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Jiangsu New Energy Development .

What Does the ROCE Trend For Jiangsu New Energy Development Tell Us?

There are better returns on capital out there than what we're seeing at Jiangsu New Energy Development. Over the past five years, ROCE has remained relatively flat at around 6.1% and the business has deployed 100% 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.

What We Can Learn From Jiangsu New Energy Development's ROCE

In summary, Jiangsu New Energy Development has simply been reinvesting capital and generating the same low rate of return as before. Unsurprisingly, the stock has only gained 38% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

Jiangsu New Energy Development does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is a bit unpleasant...

While Jiangsu New Energy Development 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.