Shenzhen RongDa Photosensitive Science & Technology (SZSE:300576) has been a hot topic among investors lately, with many wondering if it has the potential to be a multi-bagger. A multi-bagger is a stock that has the potential to increase in value multiple times over the long term, making it a lucrative investment opportunity.
One key factor to consider when looking for a multi-bagger is the company’s Return on Capital Employed (ROCE). ROCE is a metric that evaluates how much pre-tax income a company earns on the capital invested in its business. In the case of Shenzhen RongDa Photosensitive Science & Technology, its ROCE stands at 7.5%, which is higher than the industry average of 5.8% in the Chemicals sector.
While the company has been consistently earning 7.5% ROCE over the past five years, the capital employed within the business has increased by 199% during that time. This suggests that the investments made by the company may not be providing a high return on capital.
Despite the stagnant ROCE trend, long-term shareholders have seen a remarkable 348% return on their investment in the last five years. This indicates that the market is optimistic about the company’s future prospects. However, with the current trends in ROCE, it may not be a guaranteed multi-bagger going forward.
Investors should be aware of the risks associated with Shenzhen RongDa Photosensitive Science & Technology, as there are 2 warning signs to consider. While the company may not currently have the highest returns, there are other companies in the market that are earning more than 25% return on equity.
In conclusion, while Shenzhen RongDa Photosensitive Science & Technology has shown impressive returns to long-term shareholders, the stagnant ROCE trend raises concerns about its future potential as a multi-bagger. Investors are advised to conduct thorough research and consider all factors before making any investment decisions.