Stock Analysis

Here’s What’s Happening With Returns At Gordon Auto Body Parts (TPE:1524)

TWSE:1524
Source: Shutterstock

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Gordon Auto Body Parts (TPE:1524) so let's look a bit deeper.

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. Analysts use this formula to calculate it for Gordon Auto Body Parts:

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

0.028 = NT$100m ÷ (NT$5.2b - NT$1.6b) (Based on the trailing twelve months to September 2020).

Therefore, Gordon Auto Body Parts has an ROCE of 2.8%. Ultimately, that's a low return and it under-performs the Auto Components industry average of 4.7%.

Check out our latest analysis for Gordon Auto Body Parts

roce
TSEC:1524 Return on Capital Employed November 23rd 2020

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Gordon Auto Body Parts has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

While the ROCE isn't as high as some other companies out there, it's great to see it's on the up. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 48% over the last five years. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

In Conclusion...

As discussed above, Gordon Auto Body Parts appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 67% return over the last five years. In light of that, we think it's worth looking further into this stock because if Gordon Auto Body Parts can keep these trends up, it could have a bright future ahead.

If you'd like to know more about Gordon Auto Body Parts, we've spotted 4 warning signs, and 1 of them can't be ignored.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

When trading Gordon Auto Body Parts or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted


New: Manage All Your Stock Portfolios in One Place

We've created the ultimate portfolio companion for stock investors, and it's free.

• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your stocks

Try a Demo Portfolio for Free

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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020


Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.

About TWSE:1524

Gordon Auto Body Parts

Manufactures and sells automotive metal replacement crash parts worldwide.

Solid track record with excellent balance sheet.

Community Narratives

Leading the Game with Growth, Innovation, and Exceptional Returns
Fair Value SEK 300.00|49.486999999999995% undervalued
Investingwilly
Investingwilly
Community Contributor
Why ASML Dominates the Chip Market
Fair Value €864.91|16.442% undervalued
yiannisz
yiannisz
Community Contributor
Global Payments will reach new heights with a 34% upside potential
Fair Value US$142.00|20.528% undervalued
Maxell
Maxell
Community Contributor