Kanzhun (NASDAQ:BZ) Is Doing The Right Things To Multiply Its Share Price
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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. With that in mind, we've noticed some promising trends at Kanzhun (NASDAQ:BZ) so let's look a bit deeper.
What Is 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 Kanzhun:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0013 = CN¥18m ÷ (CN¥17b - CN¥3.7b) (Based on the trailing twelve months to September 2023).
Therefore, Kanzhun has an ROCE of 0.1%. Ultimately, that's a low return and it under-performs the Interactive Media and Services industry average of 9.0%.
Check out our latest analysis for Kanzhun
Above you can see how the current ROCE for Kanzhun 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 report for Kanzhun.
What The Trend Of ROCE Can Tell Us
Kanzhun has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses three years ago, but now it's earning 0.1% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Kanzhun is utilizing 399% more capital than it was three years ago. 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.
On a related note, the company's ratio of current liabilities to total assets has decreased to 21%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.
What We Can Learn From Kanzhun's ROCE
To the delight of most shareholders, Kanzhun has now broken into profitability. Astute investors may have an opportunity here because the stock has declined 39% in the last year. So researching this company further and determining whether or not these trends will continue seems justified.
While Kanzhun looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether BZ is currently trading for a fair price.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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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.
