Does Tachia Yung Ho Machine Industry (GTSM:2221) Have The Makings Of A Multi-Bagger?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. So when we looked at Tachia Yung Ho Machine Industry (GTSM:2221) and its trend of ROCE, we really liked what we saw.

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. Analysts use this formula to calculate it for Tachia Yung Ho Machine Industry:

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

0.096 = NT$99m ÷ (NT$1.4b - NT$402m) (Based on the trailing twelve months to September 2020).

So, Tachia Yung Ho Machine Industry has an ROCE of 9.6%. On its own, that's a low figure but it's around the 9.4% average generated by the Machinery industry.

Check out our latest analysis for Tachia Yung Ho Machine Industry

Historical performance is a great place to start when researching a stock so above you can see the gauge for Tachia Yung Ho Machine Industry's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Tachia Yung Ho Machine Industry, check out these free graphs here.

The Trend Of ROCE

Tachia Yung Ho Machine Industry's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 37% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line

To sum it up, Tachia Yung Ho Machine Industry is collecting higher returns from the same amount of capital, and that's impressive. And with a respectable 78% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to continue researching Tachia Yung Ho Machine Industry, you might be interested to know about the 3 warning signs that our analysis has discovered.

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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