Qinhuangdao Port's (HKG:3369) Returns Have Hit A Wall

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Qinhuangdao Port (HKG:3369) and its ROCE trend, we weren't exactly thrilled.

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 Qinhuangdao Port, this is the formula:

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

0.072 = CN¥1.8b ÷ (CN¥28b - CN¥3.0b) (Based on the trailing twelve months to September 2023).

Therefore, Qinhuangdao Port has an ROCE of 7.2%. Even though it's in line with the industry average of 7.2%, it's still a low return by itself.

See our latest analysis for Qinhuangdao Port

Historical performance is a great place to start when researching a stock so above you can see the gauge for Qinhuangdao Port's ROCE against it's prior returns. If you're interested in investigating Qinhuangdao Port's past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

There hasn't been much to report for Qinhuangdao Port's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if Qinhuangdao Port doesn't end up being a multi-bagger in a few years time.

The Bottom Line On Qinhuangdao Port's ROCE

In a nutshell, Qinhuangdao Port has been trudging along with the same returns from the same amount of capital over the last five years. And with the stock having returned a mere 1.5% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

One more thing to note, we've identified 1 warning sign with Qinhuangdao Port and understanding it should be part of your investment process.

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. 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.