Investors Met With Slowing Returns on Capital At China Science and Education Industry Group (HKG:1756)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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 investigating China Science and Education Industry Group (HKG:1756), we don't think it's current trends fit the mold of a multi-bagger.

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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 China Science and Education Industry Group is:

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

0.091 = CN¥546m ÷ (CN¥7.2b - CN¥1.2b) (Based on the trailing twelve months to February 2025).

So, China Science and Education Industry Group has an ROCE of 9.1%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.2%.

View our latest analysis for China Science and Education Industry Group

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 China Science and Education Industry Group's past further, check out this free graph covering China Science and Education Industry Group's past earnings, revenue and cash flow.

What Can We Tell From China Science and Education Industry Group's ROCE Trend?

In terms of China Science and Education Industry Group's historical ROCE trend, it doesn't exactly demand attention. The company has employed 62% more capital in the last five years, and the returns on that capital have remained stable at 9.1%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Our Take On China Science and Education Industry Group's ROCE

Long story short, while China Science and Education Industry Group has been reinvesting its capital, the returns that it's generating haven't increased. It seems that investors have little hope of these trends getting any better and that may have partly contributed to the stock collapsing 77% in the last five years. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

Like most companies, China Science and Education Industry Group does come with some risks, and we've found 2 warning signs that you should be aware of.

While China Science and Education Industry Group 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.