CGN New Energy Holdings (HKG:1811) Is Experiencing Growth In Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. So when we looked at CGN New Energy Holdings (HKG:1811) and its trend of ROCE, we really liked what we saw.

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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. Analysts use this formula to calculate it for CGN New Energy Holdings:

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

0.077 = US$479m ÷ (US$9.1b - US$2.9b) (Based on the trailing twelve months to June 2025).

Therefore, CGN New Energy Holdings has an ROCE of 7.7%. On its own that's a low return, but compared to the average of 6.2% generated by the Renewable Energy industry, it's much better.

See our latest analysis for CGN New Energy Holdings

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

How Are Returns Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 7.7%. The amount of capital employed has increased too, by 44%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Key Takeaway

In summary, it's great to see that CGN New Energy Holdings can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 158% 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.

If you want to know some of the risks facing CGN New Energy Holdings we've found 2 warning signs (1 is concerning!) that you should be aware of before investing here.

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.