Is Dee Van Enterprise (GTSM:8115) A Future Multi-bagger?

By
Simply Wall St
Published
February 10, 2021
TPEX:8115
Source: Shutterstock

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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 Dee Van Enterprise's (GTSM:8115) 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. Analysts use this formula to calculate it for Dee Van Enterprise:

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

0.059 = NT$171m ÷ (NT$4.3b - NT$1.4b) (Based on the trailing twelve months to June 2020).

Therefore, Dee Van Enterprise has an ROCE of 5.9%. In absolute terms, that's a low return but it's around the Electrical industry average of 7.1%.

Check out our latest analysis for Dee Van Enterprise

roce
GTSM:8115 Return on Capital Employed February 11th 2021

Historical performance is a great place to start when researching a stock so above you can see the gauge for Dee Van Enterprise's ROCE against it's prior returns. If you'd like to look at how Dee Van Enterprise has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Dee Van Enterprise has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 5.9% on its capital. Not only that, but the company is utilizing 95% more capital than before, but that's to be expected from a company 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.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 32%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

The Bottom Line On Dee Van Enterprise's ROCE

In summary, it's great to see that Dee Van Enterprise has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a staggering 118% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a final note, we found 5 warning signs for Dee Van Enterprise (1 is a bit unpleasant) you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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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Simply Wall St is focused on providing unbiased, high-quality research coverage on every listed company in the world. Our research team consists of data scientists and multiple equity analysts with over two decades worth of financial markets experience between them.