What Can The Trends At Singtex Industrial (GTSM:4433) Tell Us About Their Returns?

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Singtex Industrial (GTSM:4433) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

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 Singtex Industrial:

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

0.04 = NT$119m ÷ (NT$4.3b - NT$1.4b) (Based on the trailing twelve months to September 2020).

So, Singtex Industrial has an ROCE of 4.0%. Even though it's in line with the industry average of 4.1%, it's still a low return by itself.

See our latest analysis for Singtex Industrial

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'd like to look at how Singtex Industrial has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Singtex Industrial's ROCE Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 4.0%. The amount of capital employed has increased too, by 304%. So we're very much inspired by what we're seeing at Singtex Industrial thanks to its ability to profitably reinvest capital.

The Bottom Line

In summary, it's great to see that Singtex Industrial can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with a respectable 65% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Singtex Industrial can keep these trends up, it could have a bright future ahead.

Singtex Industrial does have some risks, we noticed 3 warning signs (and 2 which shouldn't be ignored) we think you should know about.

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

When trading Singtex Industrial or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.