We're Watching These Trends At Jinxin Fertility Group (HKG:1951)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. Having said that, from a first glance at Jinxin Fertility Group (HKG:1951) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 Jinxin Fertility Group:

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

0.042 = CN¥361m ÷ (CN¥9.2b - CN¥611m) (Based on the trailing twelve months to June 2020).

Thus, Jinxin Fertility Group has an ROCE of 4.2%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 9.8%.

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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Jinxin Fertility Group's ROCE Trend?

In terms of Jinxin Fertility Group's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 21% over the last three years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

On a side note, Jinxin Fertility Group has done well to pay down its current liabilities to 6.6% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

What We Can Learn From Jinxin Fertility Group's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Jinxin Fertility Group is reinvesting for growth and has higher sales as a result. Furthermore the stock has climbed 12% over the last year, it would appear that investors are upbeat about the future. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

If you want to continue researching Jinxin Fertility Group, you might be interested to know about the 1 warning sign that our analysis has discovered.

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