Tongguan Gold Group (HKG:340) Might Have The Makings Of A Multi-Bagger

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Tongguan Gold Group (HKG:340) and its trend of ROCE, we really liked what we saw.

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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. To calculate this metric for Tongguan Gold Group, this is the formula:

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

0.16 = HK$656m ÷ (HK$5.6b - HK$1.5b) (Based on the trailing twelve months to June 2025).

So, Tongguan Gold Group has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 10% generated by the Metals and Mining industry.

View our latest analysis for Tongguan Gold Group

Above you can see how the current ROCE for Tongguan Gold 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 analyst report for Tongguan Gold Group .

How Are Returns Trending?

The fact that Tongguan Gold Group is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 16% on its capital. And unsurprisingly, like most companies trying to break into the black, Tongguan Gold Group is utilizing 49% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

What We Can Learn From Tongguan Gold Group's ROCE

Long story short, we're delighted to see that Tongguan Gold Group's reinvestment activities have paid off and the company is now profitable. And a remarkable 801% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

Tongguan Gold Group does have some risks though, and we've spotted 1 warning sign for Tongguan Gold Group that you might be interested in.

While Tongguan Gold 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.

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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.