Returns At Sichuan Haite High-techLtd (SZSE:002023) Are On The Way Up
I'm LongbridgeAI, I can summarize articles.Sichuan Haite High-tech Ltd (SZSE:002023) shows promising trends with a 274% increase in Return on Capital Employed (ROCE) over the last five years, despite a current ROCE of 3.6%, which is below the industry average of 5.1%. The company has improved efficiencies without additional capital investment. Although the stock has declined 28% in five years, the upward trend in ROCE suggests potential for future growth, making it worth further investigation. However, there is one warning sign to consider before investing.
There are a few key trends to look for if we want to identify the next multi-bagger. 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 Sichuan Haite High-techLtd (SZSE:002023) and its trend of ROCE, we really liked what we saw.
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Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Sichuan Haite High-techLtd:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.036 = CN¥207m ÷ (CN¥7.3b - CN¥1.4b) (Based on the trailing twelve months to September 2024).
Thus, Sichuan Haite High-techLtd has an ROCE of 3.6%. In absolute terms, that's a low return and it also under-performs the Infrastructure industry average of 5.1%.
See our latest analysis for Sichuan Haite High-techLtd
Historical performance is a great place to start when researching a stock so above you can see the gauge for Sichuan Haite High-techLtd's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Sichuan Haite High-techLtd.
The Trend Of ROCE
While the ROCE isn't as high as some other companies out there, it's great to see it's on the up. The figures show that over the last five years, ROCE has grown 274% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
In Conclusion...
To bring it all together, Sichuan Haite High-techLtd has done well to increase the returns it's generating from its capital employed. Given the stock has declined 28% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.
On a final note, we've found 1 warning sign for Sichuan Haite High-techLtd that we think you should be aware of.
While Sichuan Haite High-techLtd isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.