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If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Full Truck Alliance (NYSE:YMM) looks quite promising in regards to its trends of return on capital.
Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Full Truck Alliance:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.065 = CN¥2.5b ÷ (CN¥41b - CN¥3.0b) (Based on the trailing twelve months to December 2024).
Thus, Full Truck Alliance has an ROCE of 6.5%. In absolute terms, that's a low return but it's around the Transportation industry average of 7.5%.
See our latest analysis for Full Truck Alliance
Above you can see how the current ROCE for Full Truck Alliance compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Full Truck Alliance for free.
What Can We Tell From Full Truck Alliance's ROCE Trend?
The fact that Full Truck Alliance is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 6.5% on its capital. In addition to that, Full Truck Alliance is employing 161% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
The Bottom Line
To the delight of most shareholders, Full Truck Alliance has now broken into profitability. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 85% return over the last three years. Therefore, we think it would be worth your time to check if these trends are going to continue.
On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for YMM on our platform that is definitely worth checking out.