Investigating Stock Performance and Potential
When it concerns identifying a stock with the capacity for significant growth, it is essential to assess the underlying trends in the business. Ideally, it is crucial to observe a company that is making substantial investments in its operations while concurrently experiencing a growth in returns from those investments. These are indicative of a company with a robust business model and numerous profitable reinvestment opportunities. Therefore, a closer examination of Shenzhen Senior Technology Material (SZSE:300568) is warranted to ascertain how it aligns with these criteria.
Assessing Return On Capital Employed (ROCE)
For those unfamiliar with ROCE, this metric quantifies the ‘return’ (pre-tax profit) that a company generates from the capital employed in its business. To calculate the ROCE for Shenzhen Senior Technology Material, the following formula is employed:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) รท (Total Assets – Current Liabilities)
Based on the figures for the trailing twelve months to March 2024, it has been determined that Shenzhen Senior Technology Material has an ROCE of 4.0%. While this figure is a relatively low return in absolute terms, it also falls below the Chemicals industry average of 5.5%.
Trends in Returns
Regrettably, the returns on capital for Shenzhen Senior Technology Material are underwhelming when compared to other companies. Over the past five years, the ROCE has stagnated at around 4.0%, despite a 374% increase in capital deployed into its operations. This implies that the investments made have not yielded a high return.
The Verdict on Shenzhen Senior Technology Material’s ROCE
In conclusion, despite Shenzhen Senior Technology Material making increased investments into the business, the returns on that capital have not increased proportionally. While the stock has achieved a notable 67% gain over the last five years, these underlying trends do not augur well for its potential for significant growth in the future.
Going Forward
Despite the present returns, it is noteworthy that there are companies currently earning over a 25% return on equity. For further information on companies exhibiting higher returns, we encourage you to peruse the comprehensive list available.
This assessment strives to offer a thorough analysis, encompassing fair value estimates, risks, dividends, insider transactions, and financial health, to empower investors in making informed decisions.
Disclaimer
As this article is intended to be general in nature and based on historical data and analyst forecasts, it does not constitute financial advice. It should not be perceived as a recommendation to buy or sell any stock, and it may not account for individual financial circumstances or the latest price-sensitive company announcements.
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About SZSE:300568
Shenzhen Senior Technology Material Co., Ltd.
High growth potential with an excellent balance sheet.