Capital Allocation Trends At Appotronics (SHSE:688007) Aren't Ideal

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Appotronics (SHSE:688007), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Appotronics:

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

0.0027 = CN¥8.3m ÷ (CN¥4.2b - CN¥1.1b) (Based on the trailing twelve months to December 2024).

Thus, Appotronics has an ROCE of 0.3%. Ultimately, that's a low return and it under-performs the Electronic industry average of 5.8%.

View our latest analysis for Appotronics

In the above chart we have measured Appotronics' 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 Appotronics .

What Does the ROCE Trend For Appotronics Tell Us?

In terms of Appotronics' historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 0.3% from 11% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line

To conclude, we've found that Appotronics is reinvesting in the business, but returns have been falling. And investors appear hesitant that the trends will pick up because the stock has fallen 27% in the last five years. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Appotronics does have some risks though, and we've spotted 1 warning sign for Appotronics that you might be interested in.

While Appotronics 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.