Champion Building MaterialsLtd (TWSE:1806) Might Have The Makings Of A Multi-Bagger

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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Champion Building MaterialsLtd (TWSE:1806) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on Champion Building MaterialsLtd is:

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

0.043 = NT$246m ÷ (NT$8.0b - NT$2.3b) (Based on the trailing twelve months to December 2023).

Thus, Champion Building MaterialsLtd has an ROCE of 4.3%. In absolute terms, that's a low return and it also under-performs the Building industry average of 8.0%.

See our latest analysis for Champion Building MaterialsLtd

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

So How Is Champion Building MaterialsLtd's ROCE Trending?

Shareholders will be relieved that Champion Building MaterialsLtd has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 4.3% on its capital. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

Our Take On Champion Building MaterialsLtd's ROCE

In summary, we're delighted to see that Champion Building MaterialsLtd has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a solid 89% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Champion Building MaterialsLtd can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 1 warning sign facing Champion Building MaterialsLtd that you might find interesting.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.