Tianjin Tianbao Energy (HKG:1671) Has Some Way To Go To Become A Multi-Bagger

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Tianjin Tianbao Energy (HKG:1671) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Tianjin Tianbao Energy is:

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

0.044 = CN¥32m ÷ (CN¥1.1b - CN¥335m) (Based on the trailing twelve months to December 2024).

Therefore, Tianjin Tianbao Energy has an ROCE of 4.4%. On its own, that's a low figure but it's around the 4.6% average generated by the Electric Utilities industry.

Check out our latest analysis for Tianjin Tianbao Energy

Historical performance is a great place to start when researching a stock so above you can see the gauge for Tianjin Tianbao Energy's ROCE against it's prior returns. If you'd like to look at how Tianjin Tianbao Energy has performed in the past in other metrics, you can view this free graph of Tianjin Tianbao Energy's past earnings, revenue and cash flow.

What Can We Tell From Tianjin Tianbao Energy's ROCE Trend?

The returns on capital haven't changed much for Tianjin Tianbao Energy in recent years. The company has employed 83% more capital in the last five years, and the returns on that capital have remained stable at 4.4%. 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.

What We Can Learn From Tianjin Tianbao Energy's ROCE

Long story short, while Tianjin Tianbao Energy has been reinvesting its capital, the returns that it's generating haven't increased. Unsurprisingly, the stock has only gained 27% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Tianjin Tianbao Energy (of which 2 are concerning!) that you should know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.