GEPIC Energy Development (SZSE:000791) Has Some Way To Go To Become A Multi-Bagger

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think GEPIC Energy Development (SZSE:000791) 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)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for GEPIC Energy Development, this is the formula:

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

0.056 = CN¥1.0b ÷ (CN¥20b - CN¥1.8b) (Based on the trailing twelve months to March 2024).

Therefore, GEPIC Energy Development has an ROCE of 5.6%. 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 GEPIC Energy Development

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'd like to look at how GEPIC Energy Development has performed in the past in other metrics, you can view this free graph of GEPIC Energy Development's past earnings, revenue and cash flow.

How Are Returns Trending?

Things have been pretty stable at GEPIC Energy Development, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So unless we see a substantial change at GEPIC Energy Development in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

Our Take On GEPIC Energy Development's ROCE

We can conclude that in regards to GEPIC Energy Development's returns on capital employed and the trends, there isn't much change to report on. Since the stock has gained an impressive 63% 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.

GEPIC Energy Development does have some risks, we noticed 3 warning signs (and 2 which are a bit concerning) we think you should 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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