Stock Analysis

Return Trends At Globetronics Technology Bhd (KLSE:GTRONIC) Aren't Appealing

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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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Globetronics Technology Bhd (KLSE:GTRONIC) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding 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. The formula for this calculation on Globetronics Technology Bhd is:

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

0.16 = RM49m ÷ (RM327m - RM26m) (Based on the trailing twelve months to December 2022).

So, Globetronics Technology Bhd has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Semiconductor industry average of 12% it's much better.

View our latest analysis for Globetronics Technology Bhd

KLSE:GTRONIC Return on Capital Employed March 29th 2023

In the above chart we have measured Globetronics Technology Bhd'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 report for Globetronics Technology Bhd.

How Are Returns Trending?

Over the past five years, Globetronics Technology Bhd's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at Globetronics Technology Bhd in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. On top of that you'll notice that Globetronics Technology Bhd has been paying out a large portion (102%) of earnings in the form of dividends to shareholders. Most shareholders probably know this and own the stock for its dividend.

On a side note, Globetronics Technology Bhd has done well to reduce current liabilities to 8.1% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

What We Can Learn From Globetronics Technology Bhd's ROCE

In a nutshell, Globetronics Technology Bhd has been trudging along with the same returns from the same amount of capital over the last five years. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. Therefore based on the analysis done in this article, we don't think Globetronics Technology Bhd has the makings of a multi-bagger.

Like most companies, Globetronics Technology Bhd does come with some risks, and we've found 1 warning sign that you should be aware of.

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