Has Qinqin Foodstuffs Group (Cayman) (HKG:1583) Got What It Takes To Become A Multi-Bagger?

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. 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 Qinqin Foodstuffs Group (Cayman) (HKG:1583) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding 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 Qinqin Foodstuffs Group (Cayman), this is the formula:

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

0.065 = CN¥79m ÷ (CN¥1.5b - CN¥256m) (Based on the trailing twelve months to June 2020).

So, Qinqin Foodstuffs Group (Cayman) has an ROCE of 6.5%. Ultimately, that's a low return and it under-performs the Food industry average of 14%.

Check out our latest analysis for Qinqin Foodstuffs Group (Cayman)

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 Qinqin Foodstuffs Group (Cayman)'s past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

In terms of Qinqin Foodstuffs Group (Cayman)'s historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 16% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

What We Can Learn From Qinqin Foodstuffs Group (Cayman)'s ROCE

To conclude, we've found that Qinqin Foodstuffs Group (Cayman) is reinvesting in the business, but returns have been falling. Additionally, the stock's total return to shareholders over the last three years has been flat, which isn't too surprising. Therefore based on the analysis done in this article, we don't think Qinqin Foodstuffs Group (Cayman) has the makings of a multi-bagger.

Qinqin Foodstuffs Group (Cayman) does have some risks though, and we've spotted 1 warning sign for Qinqin Foodstuffs Group (Cayman) that you might be interested in.

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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This article by Simply Wall St is general in nature. 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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