Here's What To Make Of China Gas Industry Investment Holdings' (HKG:1940) Decelerating Rates Of Return

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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating China Gas Industry Investment Holdings (HKG:1940), we don't think it's current trends fit the mold of a multi-bagger.

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What Is 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. To calculate this metric for China Gas Industry Investment Holdings, this is the formula:

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

0.11 = CN¥197m ÷ (CN¥2.5b - CN¥606m) (Based on the trailing twelve months to June 2025).

Thus, China Gas Industry Investment Holdings has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 8.5% it's much better.

Check out our latest analysis for China Gas Industry Investment Holdings

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how China Gas Industry Investment Holdings has performed in the past in other metrics, you can view this free graph of China Gas Industry Investment Holdings' past earnings, revenue and cash flow.

How Are Returns Trending?

There hasn't been much to report for China Gas Industry Investment Holdings' returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect China Gas Industry Investment Holdings to be a multi-bagger going forward.

In Conclusion...

In a nutshell, China Gas Industry Investment Holdings has been trudging along with the same returns from the same amount of capital over the last five years. It seems that investors have little hope of these trends getting any better and that may have partly contributed to the stock collapsing 73% in the last five years. Therefore based on the analysis done in this article, we don't think China Gas Industry Investment Holdings has the makings of a multi-bagger.

While China Gas Industry Investment Holdings doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for 1940 on our platform.

While China Gas Industry Investment Holdings may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.