Investors Met With Slowing Returns on Capital At CM Energy Tech (HKG:206)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating CM Energy Tech (HKG:206), 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. Analysts use this formula to calculate it for CM Energy Tech:

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

0.061 = US$11m ÷ (US$300m - US$117m) (Based on the trailing twelve months to June 2025).

So, CM Energy Tech 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 6.1%.

Check out our latest analysis for CM Energy Tech

Historical performance is a great place to start when researching a stock so above you can see the gauge for CM Energy Tech's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of CM Energy Tech.

What The Trend Of ROCE Can Tell Us

In terms of CM Energy Tech's historical ROCE trend, it doesn't exactly demand attention. The company has employed 46% more capital in the last five years, and the returns on that capital have remained stable at 6.1%. 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.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 39% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Bottom Line

In conclusion, CM Energy Tech has been investing more capital into the business, but returns on that capital haven't increased. And with the stock having returned a mere 34% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you want to continue researching CM Energy Tech, you might be interested to know about the 1 warning sign that our analysis has discovered.

While CM Energy Tech may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.