Tycoons Group EnterpriseLtd (TPE:2022) Might 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? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. So on that note, Tycoons Group EnterpriseLtd (TPE:2022) looks quite promising in regards to its trends of return on capital.

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. The formula for this calculation on Tycoons Group EnterpriseLtd is:

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

0.021 = NT$118m ÷ (NT$8.2b - NT$2.6b) (Based on the trailing twelve months to December 2020).

Therefore, Tycoons Group EnterpriseLtd has an ROCE of 2.1%. Ultimately, that's a low return and it under-performs the Machinery industry average of 8.9%.

View our latest analysis for Tycoons Group EnterpriseLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Tycoons Group EnterpriseLtd's ROCE against it's prior returns. If you're interested in investigating Tycoons Group EnterpriseLtd's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Tycoons Group EnterpriseLtd Tell Us?

Like most people, we're pleased that Tycoons Group EnterpriseLtd is now generating some pretax earnings. While the business is profitable now, it used to be incurring losses on invested capital five years ago. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 37%. This could potentially mean that the company is selling some of its assets.

Our Take On Tycoons Group EnterpriseLtd's ROCE

In a nutshell, we're pleased to see that Tycoons Group EnterpriseLtd has been able to generate higher returns from less capital. And a remarkable 182% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

Tycoons Group EnterpriseLtd does have some risks, we noticed 3 warning signs (and 2 which don't sit too well with us) we think you should know about.

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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