Has Amulaire Thermal Technology (TPE:2241) Got What It Takes To Become A Multi-Bagger?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think Amulaire Thermal Technology (TPE:2241) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Return On Capital Employed (ROCE): What is it?

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 Amulaire Thermal Technology:

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

0.026 = NT$54m ÷ (NT$2.2b - NT$156m) (Based on the trailing twelve months to September 2020).

Therefore, Amulaire Thermal Technology has an ROCE of 2.6%. Ultimately, that's a low return and it under-performs the Auto Components industry average of 4.7%.

Check out our latest analysis for Amulaire Thermal Technology

Above you can see how the current ROCE for Amulaire Thermal Technology compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Amulaire Thermal Technology here for free.

How Are Returns Trending?

The trend of ROCE doesn't look fantastic because it's fallen from 4.0% five years ago, while the business's capital employed increased by 138%. However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period, so keep that in mind when looking at the ROCE decrease. It's unlikely that all of the funds raised have been put to work yet, so as a consequence Amulaire Thermal Technology might not have received a full period of earnings contribution from it.

In Conclusion...

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Amulaire Thermal Technology. These trends are starting to be recognized by investors since the stock has delivered a 19% gain to shareholders who've held over the last three years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

One more thing: We've identified 3 warning signs with Amulaire Thermal Technology (at least 1 which doesn't sit too well with us) , and understanding them would certainly be useful.

While Amulaire Thermal Technology isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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