Zhejiang Shibao (HKG:1057) Is Doing The Right Things To Multiply Its Share Price

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Zhejiang Shibao's (HKG:1057) returns on capital, so let's have a look.

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

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. The formula for this calculation on Zhejiang Shibao is:

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

0.088 = CN¥180m ÷ (CN¥3.3b - CN¥1.2b) (Based on the trailing twelve months to March 2025).

Therefore, Zhejiang Shibao has an ROCE of 8.8%. In absolute terms, that's a low return, but it's much better than the Auto Components industry average of 4.0%.

Check out our latest analysis for Zhejiang Shibao

In the above chart we have measured Zhejiang Shibao's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Zhejiang Shibao for free.

So How Is Zhejiang Shibao's ROCE Trending?

We're delighted to see that Zhejiang Shibao is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 8.8% on its capital. And unsurprisingly, like most companies trying to break into the black, Zhejiang Shibao is utilizing 52% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

In Conclusion...

Overall, Zhejiang Shibao gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And a remarkable 484% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing, we've spotted 1 warning sign facing Zhejiang Shibao that you might find interesting.

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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.