Has Tianjin Binhai TEDA Logistics (Group) (HKG:8348) Got What It Takes To Become A Multi-Bagger?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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 Tianjin Binhai TEDA Logistics (Group) (HKG:8348) 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)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Tianjin Binhai TEDA Logistics (Group), this is the formula:

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

0.054 = CN¥65m ÷ (CN¥2.4b - CN¥1.2b) (Based on the trailing twelve months to September 2020).

So, Tianjin Binhai TEDA Logistics (Group) has an ROCE of 5.4%. In absolute terms, that's a low return and it also under-performs the Logistics industry average of 7.7%.

Check out our latest analysis for Tianjin Binhai TEDA Logistics (Group)

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Tianjin Binhai TEDA Logistics (Group)'s past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

There are better returns on capital out there than what we're seeing at Tianjin Binhai TEDA Logistics (Group). The company has consistently earned 5.4% for the last five years, and the capital employed within the business has risen 35% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 50% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously. We'd like to see this trend continue though because as it stands today, thats still a pretty high level.

In Conclusion...

As we've seen above, Tianjin Binhai TEDA Logistics (Group)'s returns on capital haven't increased but it is reinvesting in the business. It seems that investors have little hope of these trends getting any better and that may have partly contributed to the stock collapsing 71% in the last five years. 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.

One final note, you should learn about the 3 warning signs we've spotted with Tianjin Binhai TEDA Logistics (Group) (including 1 which is concerning) .

While Tianjin Binhai TEDA Logistics (Group) isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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