Is Polygreen Resources (GTSM:8423) A Future Multi-bagger?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. With that in mind, we've noticed some promising trends at Polygreen Resources (GTSM:8423) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Polygreen Resources:

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

0.055 = NT$25m ÷ (NT$538m - NT$82m) (Based on the trailing twelve months to September 2020).

So, Polygreen Resources has an ROCE of 5.5%. In absolute terms, that's a low return but it's around the Commercial Services industry average of 5.0%.

See our latest analysis for Polygreen Resources

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Polygreen Resources, check out these free graphs here.

So How Is Polygreen Resources' ROCE Trending?

Polygreen Resources is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 50% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

Our Take On Polygreen Resources' ROCE

In summary, we're delighted to see that Polygreen Resources has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Considering the stock has delivered 6.0% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One more thing, we've spotted 4 warning signs facing Polygreen Resources that you might find interesting.

While Polygreen Resources isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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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