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There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Queen's Road Capital Investment (TSE:QRC) looks quite promising in regards to its trends of return on capital.
Understanding 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. Analysts use this formula to calculate it for Queen's Road Capital Investment:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.02 = US$4.7m ÷ (US$237m - US$1.2m) (Based on the trailing twelve months to August 2023).
Therefore, Queen's Road Capital Investment has an ROCE of 2.0%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 3.7%.
View our latest analysis for Queen's Road Capital Investment
Historical performance is a great place to start when researching a stock so above you can see the gauge for Queen's Road Capital Investment's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Queen's Road Capital Investment, check out these free graphs here.
What Does the ROCE Trend For Queen's Road Capital Investment Tell Us?
The fact that Queen's Road Capital Investment is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 2.0% which is a sight for sore eyes. In addition to that, Queen's Road Capital Investment is employing 14,519% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.
The Key Takeaway
Overall, Queen's Road Capital Investment gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Queen's Road Capital Investment can keep these trends up, it could have a bright future ahead.