Does New Advanced Electronics Technologies (GTSM:3465) 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. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in New Advanced Electronics Technologies' (GTSM:3465) 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. To calculate this metric for New Advanced Electronics Technologies, this is the formula:

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

0.03 = NT$15m ÷ (NT$667m - NT$149m) (Based on the trailing twelve months to September 2020).

So, New Advanced Electronics Technologies has an ROCE of 3.0%. In absolute terms, that's a low return and it also under-performs the Electrical industry average of 7.1%.

View our latest analysis for New Advanced Electronics Technologies

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're interested in investigating New Advanced Electronics Technologies' past further, check out this free graph of past earnings, revenue and cash flow.

So How Is New Advanced Electronics Technologies' ROCE Trending?

The fact that New Advanced Electronics Technologies is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 3.0% which is a sight for sore eyes. In addition to that, New Advanced Electronics Technologies is employing 287% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

On a related note, the company's ratio of current liabilities to total assets has decreased to 22%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

Our Take On New Advanced Electronics Technologies' ROCE

To the delight of most shareholders, New Advanced Electronics Technologies has now broken into profitability. 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 New Advanced Electronics Technologies can keep these trends up, it could have a bright future ahead.

On a final note, we found 3 warning signs for New Advanced Electronics Technologies (2 shouldn't be ignored) you should be aware of.

While New Advanced Electronics Technologies 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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