Returns On Capital At Actions Technology (SHSE:688049) Paint A Concerning Picture

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Actions Technology (SHSE:688049), we don't think it's current trends fit the mold of a multi-bagger.

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. The formula for this calculation on Actions Technology is:

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

0.012 = CN¥22m ÷ (CN¥2.1b - CN¥216m) (Based on the trailing twelve months to September 2024).

So, Actions Technology has an ROCE of 1.2%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 4.9%.

View our latest analysis for Actions Technology

In the above chart we have measured Actions Technology's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Actions Technology .

What Does the ROCE Trend For Actions Technology Tell Us?

On the surface, the trend of ROCE at Actions Technology doesn't inspire confidence. Over the last five years, returns on capital have decreased to 1.2% from 14% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On Actions Technology's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Actions Technology. These growth trends haven't led to growth returns though, since the stock has fallen 11% over the last three years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

Actions Technology does have some risks, we noticed 2 warning signs (and 1 which is significant) we think you should know about.

While Actions Technology 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.