Canvest Environmental Protection Group (HKG:1381) Hasn't Managed To Accelerate Its Returns

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Canvest Environmental Protection Group (HKG:1381), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Canvest Environmental Protection Group, this is the formula:

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

0.086 = HK$1.8b ÷ (HK$24b - HK$3.2b) (Based on the trailing twelve months to December 2021).

Thus, Canvest Environmental Protection Group has an ROCE of 8.6%. On its own that's a low return, but compared to the average of 6.8% generated by the Renewable Energy industry, it's much better.

See our latest analysis for Canvest Environmental Protection Group

In the above chart we have measured Canvest Environmental Protection Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Canvest Environmental Protection Group.

What Can We Tell From Canvest Environmental Protection Group's ROCE Trend?

The returns on capital haven't changed much for Canvest Environmental Protection Group in recent years. The company has employed 307% more capital in the last five years, and the returns on that capital have remained stable at 8.6%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line On Canvest Environmental Protection Group's ROCE

As we've seen above, Canvest Environmental Protection Group's returns on capital haven't increased but it is reinvesting in the business. Since the stock has declined 11% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Canvest Environmental Protection Group has the makings of a multi-bagger.

One final note, you should learn about the 3 warning signs we've spotted with Canvest Environmental Protection Group (including 2 which are significant) .

While Canvest Environmental Protection 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.