COSCO SHIPPING Energy Transportation (HKG:1138) Has More To Do To Multiply In Value Going Forward

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. However, after briefly looking over the numbers, we don't think COSCO SHIPPING Energy Transportation (HKG:1138) 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)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for COSCO SHIPPING Energy Transportation, this is the formula:

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

0.062 = CN¥3.5b ÷ (CN¥66b - CN¥9.8b) (Based on the trailing twelve months to March 2021).

Thus, COSCO SHIPPING Energy Transportation has an ROCE of 6.2%. On its own that's a low return on capital but it's in line with the industry's average returns of 6.1%.

See our latest analysis for COSCO SHIPPING Energy Transportation

Above you can see how the current ROCE for COSCO SHIPPING Energy Transportation compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for COSCO SHIPPING Energy Transportation.

What The Trend Of ROCE Can Tell Us

There hasn't been much to report for COSCO SHIPPING Energy Transportation's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at COSCO SHIPPING Energy Transportation in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

The Key Takeaway

In a nutshell, COSCO SHIPPING Energy Transportation has been trudging along with the same returns from the same amount of capital over the last five years. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. 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.

One more thing to note, we've identified 3 warning signs with COSCO SHIPPING Energy Transportation and understanding these should be part of your investment process.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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