Meten Holding Group (NASDAQ:METX) Might Have The Makings Of A Multi-Bagger

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Meten Holding Group (NASDAQ:METX) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

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 Meten Holding Group:

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

0.054 = CN¥7.2m ÷ (CN¥209m - CN¥76m) (Based on the trailing twelve months to December 2022).

So, Meten Holding Group has an ROCE of 5.4%. In absolute terms, that's a low return but it's around the Consumer Services industry average of 6.8%.

View our latest analysis for Meten Holding 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 want to delve into the historical earnings, revenue and cash flow of Meten Holding Group, check out these free graphs here.

What Can We Tell From Meten Holding Group's ROCE Trend?

Like most people, we're pleased that Meten Holding Group is now generating some pretax earnings. While the business is profitable now, it used to be incurring losses on invested capital three years ago. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 31%. Meten Holding Group could be selling under-performing assets since the ROCE is improving.

One more thing to note, Meten Holding Group has decreased current liabilities to 36% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Meten Holding Group has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line

In summary, it's great to see that Meten Holding Group has been able to turn things around and earn higher returns on lower amounts of capital. Although the company may be facing some issues elsewhere since the stock has plunged 100% in the last three years. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

If you want to know some of the risks facing Meten Holding Group we've found 3 warning signs (2 are concerning!) that you should be aware of before investing here.

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.