Powermatic Data Systems (SGX:BCY) Might Have The Makings Of A Multi-Bagger

By
Simply Wall St
Published
May 30, 2021
SGX:BCY
Source: Shutterstock

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. 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 Powermatic Data Systems (SGX:BCY) so let's look a bit deeper.

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 Powermatic Data Systems:

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

0.15 = S$9.5m ÷ (S$74m - S$10m) (Based on the trailing twelve months to March 2021).

So, Powermatic Data Systems has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Communications industry average of 5.8% it's much better.

See our latest analysis for Powermatic Data Systems

roce
SGX:BCY Return on Capital Employed May 31st 2021

Historical performance is a great place to start when researching a stock so above you can see the gauge for Powermatic Data Systems' ROCE against it's prior returns. If you're interested in investigating Powermatic Data Systems' past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Powermatic Data Systems' ROCE Trend?

We like the trends that we're seeing from Powermatic Data Systems. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 15%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 34%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Powermatic Data Systems' ROCE

All in all, it's terrific to see that Powermatic Data Systems is reaping the rewards from prior investments and is growing its capital base. And a remarkable 244% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

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

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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This article by Simply Wall St is general in nature. 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.
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