Depo Auto Parts Industrial (TWSE:6605) Might Have The Makings Of A Multi-Bagger

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Depo Auto Parts Industrial's (TWSE:6605) returns on capital, so let's have a look.

Understanding 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. The formula for this calculation on Depo Auto Parts Industrial is:

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

0.12 = NT$2.9b ÷ (NT$32b - NT$7.7b) (Based on the trailing twelve months to December 2023).

Therefore, Depo Auto Parts Industrial has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 8.5% generated by the Auto Components industry.

View our latest analysis for Depo Auto Parts Industrial

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

What Can We Tell From Depo Auto Parts Industrial's ROCE Trend?

Depo Auto Parts Industrial is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 91% whilst employing roughly the same amount of capital. 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, Depo Auto Parts Industrial appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Depo Auto Parts Industrial can keep these trends up, it could have a bright future ahead.

Depo Auto Parts Industrial does have some risks though, and we've spotted 2 warning signs for Depo Auto Parts Industrial that you might be interested in.

While Depo Auto Parts Industrial 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.