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Did you know there are some financial metrics that can provide clues of a potential 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think Weibo (NASDAQ:WB) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
What Is Return On Capital Employed (ROCE)?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Weibo, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.091 = US$488m ÷ (US$7.1b - US$1.7b) (Based on the trailing twelve months to June 2024).
Therefore, Weibo has an ROCE of 9.1%. In absolute terms, that's a low return, but it's much better than the Interactive Media and Services industry average of 6.3%.
View our latest analysis for Weibo
Above you can see how the current ROCE for Weibo compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Weibo .
What The Trend Of ROCE Can Tell Us
Unfortunately, the trend isn't great with ROCE falling from 21% five years ago, while capital employed has grown 84%. That being said, Weibo raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. It's unlikely that all of the funds raised have been put to work yet, so as a consequence Weibo might not have received a full period of earnings contribution from it. Additionally, we found that Weibo's most recent EBIT figure is around the same as the prior year, so we'd attribute the drop in ROCE mostly to the capital raise.
In Conclusion...
To conclude, we've found that Weibo is reinvesting in the business, but returns have been falling. Moreover, since the stock has crumbled 72% over the last five years, it appears investors are expecting the worst. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.