We're Watching These Trends At Mobiletron ElectronicsLtd (TPE:1533)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. In light of that, when we looked at Mobiletron ElectronicsLtd (TPE:1533) and its ROCE trend, we weren't exactly thrilled.

What is 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. To calculate this metric for Mobiletron ElectronicsLtd, this is the formula:

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

0.0089 = NT$39m ÷ (NT$6.2b - NT$1.8b) (Based on the trailing twelve months to September 2020).

Therefore, Mobiletron ElectronicsLtd has an ROCE of 0.9%. In absolute terms, that's a low return and it also under-performs the Auto Components industry average of 4.7%.

Check out our latest analysis for Mobiletron ElectronicsLtd

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 want to delve into the historical earnings, revenue and cash flow of Mobiletron ElectronicsLtd, check out these free graphs here.

The Trend Of ROCE

On the surface, the trend of ROCE at Mobiletron ElectronicsLtd doesn't inspire confidence. Around five years ago the returns on capital were 7.7%, but since then they've fallen to 0.9%. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

Our Take On Mobiletron ElectronicsLtd's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Mobiletron ElectronicsLtd have fallen, meanwhile the business is employing more capital than it was five years ago. Yet despite these concerning fundamentals, the stock has performed strongly with a 97% return over the last five years, so investors appear very optimistic. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

Mobiletron ElectronicsLtd does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is significant...

While Mobiletron ElectronicsLtd 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. 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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