The return trends for Shenzhen Hopewind Electric (SHSE:603063) are not enticing

What early trends should we look for to identify a stock that could multiply in value over the long term? First, we want to identify growth return on the capital employed (ROCE) and a constantly increasing value base of the capital employed. When you see this, it usually means it’s a company with a great business model and plenty of profitable reinvestment opportunities. With this in mind, we looked at it Shenzhen Hopewind Electric (SHSE:603063) and its ROCE trend, we weren’t exactly thrilled.

What is Return on Capital Employed (ROCE)?

If you’ve never worked with ROCE before, it measures the “return” (profit before taxes) that a company generates from the capital employed in its business. The formula for this calculation for Shenzhen Hopewind Electric is:

Return on capital employed = Earnings before interest and taxes (EBIT) ÷ (total assets – current liabilities)

0.094 = CN¥491 million ÷ (CN¥7.4 billion – CN¥2.2 billion) (Based on the last twelve months ended June 2024).

So, Shenzhen Hopewind Electric has an ROCE of 9.4%. In absolute terms, this is a low return, but it is well above the electrical industry average of 5.9%.

Check out our latest analysis for Shenzhen Hopewind Electric

Above you can see how Shenzhen Hopewind Electric’s current ROCE compares to its past returns on capital, but there’s only so much you can tell from past history. If you want to see what analysts are predicting for the future, you should check out our free analyst report for Shenzhen Hopewind Electric.

What can we say about Shenzhen Hopewind Electric’s ROCE trend?

Shenzhen Hopewind Electric’s historical ROCE trend doesn’t exactly warrant attention. Over the past five years, ROCE has remained relatively constant at around 9.4%, and the company has invested 91% more capital in its operations. Given that the company has increased capital deployment, the investments made simply do not seem to produce a high return on capital.

The conclusion

As we saw above, Shenzhen Hopewind Electric’s return on capital has not increased, but the company is reinvesting in the business. Although the market should expect these trends to improve as the stock has gained 50% in the last five years. But if the evolution of these underlying trends continues, the likelihood of it becoming a multi-bagger from now on is not high, in our opinion.

However, Shenzhen Hopewind Electric has some risks that we have identified 1 warning sign for Shenzhen Hopewind Electric that might interest you.

While Shenzhen Hopewind Electric may not be producing the highest returns at the moment, we’ve put together a list of companies that are currently producing a return on equity of more than 25%. Check this out free List here.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no positions in any stocks mentioned.