Integrated Electronic Systems Lab (SZSE:002339) Hasn't Managed To Accelerate Its Returns

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. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. In light of that, when we looked at Integrated Electronic Systems Lab (SZSE:002339) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Integrated Electronic Systems Lab, this is the formula:

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

0.029 = CN¥73m ÷ (CN¥4.0b - CN¥1.6b) (Based on the trailing twelve months to September 2024).

Thus, Integrated Electronic Systems Lab has an ROCE of 2.9%. In absolute terms, that's a low return and it also under-performs the Electrical industry average of 5.8%.

Check out our latest analysis for Integrated Electronic Systems Lab

Historical performance is a great place to start when researching a stock so above you can see the gauge for Integrated Electronic Systems Lab's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Integrated Electronic Systems Lab.

What Does the ROCE Trend For Integrated Electronic Systems Lab Tell Us?

Things have been pretty stable at Integrated Electronic Systems Lab, with its capital employed and returns on that capital staying somewhat the same for the last 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. So unless we see a substantial change at Integrated Electronic Systems Lab in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

What We Can Learn From Integrated Electronic Systems Lab's ROCE

In a nutshell, Integrated Electronic Systems Lab has been trudging along with the same returns from the same amount of capital over the last five years. Unsurprisingly, the stock has only gained 19% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

Integrated Electronic Systems Lab does have some risks, we noticed 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

While Integrated Electronic Systems Lab 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.