Should You Invest In O-TA Precision Industry (GTSM:8924)?

Did you know there are some financial metrics that can provide clues of a potential 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. And in light of that, the trends we're seeing at O-TA Precision Industry's (GTSM:8924) look very promising so lets take a look.

What is 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. Analysts use this formula to calculate it for O-TA Precision Industry:

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

0.22 = NT$574m ÷ (NT$3.7b - NT$1.0b) (Based on the trailing twelve months to September 2020).

Thus, O-TA Precision Industry has an ROCE of 22%. That's a fantastic return and not only that, it outpaces the average of 13% earned by companies in a similar industry.

View our latest analysis for O-TA Precision Industry

Above you can see how the current ROCE for O-TA Precision Industry compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for O-TA Precision Industry.

The Trend Of ROCE

Shareholders will be relieved that O-TA Precision Industry has broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 22%, which is always encouraging. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. 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. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

Our Take On O-TA Precision Industry's ROCE

To bring it all together, O-TA Precision Industry has done well to increase the returns it's generating from its capital employed. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if O-TA Precision Industry can keep these trends up, it could have a bright future ahead.

On a final note, we've found 1 warning sign for O-TA Precision Industry that we think you should be aware of.

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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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