Returns On Capital At Bai Sha Technology (GTSM:8401) Have Hit The Brakes

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Bai Sha Technology (GTSM:8401), it didn't seem to tick all of these boxes.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Bai Sha Technology:

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

0.054 = NT$62m ÷ (NT$1.5b - NT$332m) (Based on the trailing twelve months to December 2020).

Therefore, Bai Sha Technology has an ROCE of 5.4%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.4%.

View our latest analysis for Bai Sha Technology

Historical performance is a great place to start when researching a stock so above you can see the gauge for Bai Sha Technology's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Bai Sha Technology, check out these free graphs here.

How Are Returns Trending?

Things have been pretty stable at Bai Sha Technology, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if Bai Sha Technology doesn't end up being a multi-bagger in a few years time.

The Bottom Line

In a nutshell, Bai Sha Technology has been trudging along with the same returns from the same amount of capital over the last five years. Although the market must be expecting these trends to improve because the stock has gained 67% over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

If you'd like to know about the risks facing Bai Sha Technology, we've discovered 2 warning signs that you should be aware of.

While Bai Sha Technology 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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