Returns On Capital At Qinqin Foodstuffs Group (Cayman) (HKG:1583) Paint A Concerning Picture

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. 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.

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

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 Qinqin Foodstuffs Group (Cayman):

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

0.0022 = CN¥3.2m ÷ (CN¥1.8b - CN¥407m) (Based on the trailing twelve months to June 2024).

Therefore, Qinqin Foodstuffs Group (Cayman) has an ROCE of 0.2%. In absolute terms, that's a low return and it also under-performs the Food industry average of 7.5%.

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

Historical performance is a great place to start when researching a stock so above you can see the gauge for Qinqin Foodstuffs Group (Cayman)'s ROCE against it's prior returns. If you'd like to look at how Qinqin Foodstuffs Group (Cayman) has performed in the past in other metrics, you can view this free graph of Qinqin Foodstuffs Group (Cayman)'s past earnings, revenue and cash flow.

How Are Returns Trending?

When we looked at the ROCE trend at Qinqin Foodstuffs Group (Cayman), we didn't gain much confidence. To be more specific, ROCE has fallen from 2.6% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

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

In summary, Qinqin Foodstuffs Group (Cayman) is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And in the last five years, the stock has given away 53% so the market doesn't look too hopeful on these trends strengthening any time soon. 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.

Qinqin Foodstuffs Group (Cayman) does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is a bit unpleasant...

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.