Stock Analysis

Does Asia Metal Industries (GTSM:6727) Have The DNA Of A Multi-Bagger?

TPEX:6727
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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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at the ROCE trend of Asia Metal Industries (GTSM:6727) we really liked what we saw.

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. Analysts use this formula to calculate it for Asia Metal Industries:

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

0.27 = NT$134m ÷ (NT$1.8b - NT$1.3b) (Based on the trailing twelve months to September 2020).

So, Asia Metal Industries has an ROCE of 27%. In absolute terms that's a great return and it's even better than the Machinery industry average of 9.4%.

View our latest analysis for Asia Metal Industries

roce
GTSM:6727 Return on Capital Employed February 25th 2021

Above you can see how the current ROCE for Asia Metal Industries compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Asia Metal Industries.

What Does the ROCE Trend For Asia Metal Industries Tell Us?

Asia Metal Industries is displaying some positive trends. Over the last three years, returns on capital employed have risen substantially to 27%. 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 41%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. The current liabilities has increased to 72% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. And with current liabilities at those levels, that's pretty high.

The Bottom Line On Asia Metal Industries' ROCE

To sum it up, Asia Metal Industries has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And given the stock has remained rather flat over the last year, there might be an opportunity here if other metrics are strong. So researching this company further and determining whether or not these trends will continue seems justified.

If you'd like to know about the risks facing Asia Metal Industries, we've discovered 6 warning signs that you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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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