We're Watching These Trends At Concord New Energy Group (HKG:182)

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Although, when we looked at Concord New Energy Group (HKG:182), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Concord New Energy Group:

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

0.059 = CN¥786m ÷ (CN¥20b - CN¥6.4b) (Based on the trailing twelve months to June 2020).

So, Concord New Energy Group has an ROCE of 5.9%. Ultimately, that's a low return and it under-performs the Renewable Energy industry average of 7.5%.

View our latest analysis for Concord New Energy Group

In the above chart we have measured Concord New Energy Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Concord New Energy Group here for free.

The Trend Of ROCE

The returns on capital haven't changed much for Concord New Energy Group in recent years. The company has employed 82% more capital in the last five years, and the returns on that capital have remained stable at 5.9%. 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 Concord New Energy Group's ROCE

Long story short, while Concord New Energy Group has been reinvesting its capital, the returns that it's generating haven't increased. And with the stock having returned a mere 25% 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: We've identified 4 warning signs with Concord New Energy Group (at least 1 which doesn't sit too well with us) , and understanding them would certainly be useful.

While Concord New Energy 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. 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.
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