Jinxin Fertility Group's (HKG:1951) Returns On Capital Not Reflecting Well On The Business

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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 briefly looking over the numbers, we don't think Jinxin Fertility Group (HKG:1951) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

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. The formula for this calculation on Jinxin Fertility Group is:

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

0.034 = CN¥442m ÷ (CN¥15b - CN¥2.1b) (Based on the trailing twelve months to December 2024).

So, Jinxin Fertility Group has an ROCE of 3.4%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 8.4%.

View our latest analysis for Jinxin Fertility Group

Above you can see how the current ROCE for Jinxin Fertility Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Jinxin Fertility Group for free.

What The Trend Of ROCE Can Tell Us

In terms of Jinxin Fertility Group's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 3.4% from 6.2% five years ago. 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 may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line

In summary, Jinxin Fertility Group is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Moreover, since the stock has crumbled 75% over the last five years, it appears investors are expecting the worst. Therefore based on the analysis done in this article, we don't think Jinxin Fertility Group has the makings of a multi-bagger.

Jinxin Fertility Group could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 1951 on our platform quite valuable.

While Jinxin Fertility Group 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.

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.