If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Freetech Road Recycling Technology (Holdings) (HKG:6888) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Freetech Road Recycling Technology (Holdings) is:

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

0.007 = HK$5.2m ÷ (HK$1.1b - HK$364m) (Based on the trailing twelve months to June 2024).

Thus, Freetech Road Recycling Technology (Holdings) has an ROCE of 0.7%. In absolute terms, that's a low return and it also under-performs the Infrastructure industry average of 4.9%.

View our latest analysis for Freetech Road Recycling Technology (Holdings)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Freetech Road Recycling Technology (Holdings)'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 Freetech Road Recycling Technology (Holdings).

So How Is Freetech Road Recycling Technology (Holdings)'s ROCE Trending?

Shareholders will be relieved that Freetech Road Recycling Technology (Holdings) has broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 0.7%, which is always encouraging. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

The Key Takeaway

In summary, we're delighted to see that Freetech Road Recycling Technology (Holdings) has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has only returned 20% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

On a final note, we've found 2 warning signs for Freetech Road Recycling Technology (Holdings) that we think you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.