The Returns At ZTO Express (Cayman) (NYSE:ZTO) Aren't Growing

If you're looking for a multi-bagger, there's a few things to keep an eye out 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. So, when we ran our eye over ZTO Express (Cayman)'s (NYSE:ZTO) trend of ROCE, we liked what we saw.

Return On Capital Employed (ROCE): What is it?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for ZTO Express (Cayman), this is the formula:

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

0.12 = CN¥6.0b ÷ (CN¥65b - CN¥16b) (Based on the trailing twelve months to March 2022).

So, ZTO Express (Cayman) has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 15% generated by the Logistics industry.

View our latest analysis for ZTO Express (Cayman)

Above you can see how the current ROCE for ZTO Express (Cayman) compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for ZTO Express (Cayman).

So How Is ZTO Express (Cayman)'s ROCE Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 143% more capital in the last five years, and the returns on that capital have remained stable at 12%. Since 12% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Key Takeaway

To sum it up, ZTO Express (Cayman) has simply been reinvesting capital steadily, at those decent rates of return. Therefore it's no surprise that shareholders have earned a respectable 87% return if they held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

ZTO Express (Cayman) could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

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.