JA Solar Technology (SZSE:002459) may not be the next multi-bagger investment opportunity based on its current trends. The company’s Return on Capital Employed (ROCE) stands at a low 0.1%, which is below the semiconductor industry average of 4.8%. Despite the company’s efforts to pay down current liabilities and reinvest in the business, the returns are shrinking. Five years ago, the ROCE was at 14%, but it has since dropped to 0.1%.
The trend of ROCE at JA Solar Technology does not inspire confidence, as the company has not seen much improvement in sales despite utilizing more capital. This may indicate longer-term investments that have yet to yield results in terms of earnings. While the decrease in current liabilities is a positive sign in terms of risk reduction, the business may be funding more operations with its own money, potentially impacting efficiency in generating ROCE.
Despite a 220% gain in stock price over the last five years, investors should be cautious about expecting significant returns in the future unless underlying trends improve. There are also three warning signs for investors to consider. Ultimately, while JA Solar Technology has made efforts to strengthen its financial position, the decreasing returns on capital employed suggest that caution is warranted when considering investing in the company.
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