Is KMC (Kuei Meng) International (GTSM:5306) The Next Multi-Bagger?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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, the ROCE of KMC (Kuei Meng) International (GTSM:5306) looks great, so lets see what the trend can tell us.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for KMC (Kuei Meng) International, this is the formula:

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

0.20 = NT$1.7b ÷ (NT$10b - NT$2.2b) (Based on the trailing twelve months to September 2020).

So, KMC (Kuei Meng) International has an ROCE of 20%. That's a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.

View our latest analysis for KMC (Kuei Meng) International

In the above chart we have measured KMC (Kuei Meng) International's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering KMC (Kuei Meng) International here for free.

What Can We Tell From KMC (Kuei Meng) International's ROCE Trend?

The trends we've noticed at KMC (Kuei Meng) International are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 20%. Basically the business is earning more per dollar of capital invested and in addition to that, 53% more capital is being employed now too. So we're very much inspired by what we're seeing at KMC (Kuei Meng) International thanks to its ability to profitably reinvest capital.

One more thing to note, KMC (Kuei Meng) International has decreased current liabilities to 21% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that KMC (Kuei Meng) International has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

What We Can Learn From KMC (Kuei Meng) International's ROCE

To sum it up, KMC (Kuei Meng) International has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a solid 92% 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 KMC (Kuei Meng) International can keep these trends up, it could have a bright future ahead.

If you want to continue researching KMC (Kuei Meng) International, you might be interested to know about the 2 warning signs that our analysis has discovered.

KMC (Kuei Meng) International is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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