Does Hotron Precision Electronic IndustrialLtd (GTSM:3092) Have The Makings Of A Multi-Bagger?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. Speaking of which, we noticed some great changes in Hotron Precision Electronic IndustrialLtd's (GTSM:3092) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Hotron Precision Electronic IndustrialLtd, this is the formula:

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

0.13 = NT$330m ÷ (NT$3.9b - NT$1.4b) (Based on the trailing twelve months to September 2020).

Therefore, Hotron Precision Electronic IndustrialLtd has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Electrical industry average of 7.1% it's much better.

See our latest analysis for Hotron Precision Electronic IndustrialLtd

Above you can see how the current ROCE for Hotron Precision Electronic IndustrialLtd 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 Hotron Precision Electronic IndustrialLtd here for free.

What The Trend Of ROCE Can Tell Us

We like the trends that we're seeing from Hotron Precision Electronic IndustrialLtd. Over the last five years, returns on capital employed have risen substantially to 13%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 66%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Hotron Precision Electronic IndustrialLtd's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Hotron Precision Electronic IndustrialLtd has. And a remarkable 466% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Hotron Precision Electronic IndustrialLtd can keep these trends up, it could have a bright future ahead.

If you want to continue researching Hotron Precision Electronic IndustrialLtd, you might be interested to know about the 3 warning signs that our analysis has discovered.

While Hotron Precision Electronic IndustrialLtd 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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