Has Sun Race Sturmey-Archer (TPE:1526) Got What It Takes To Become A Multi-Bagger?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at Sun Race Sturmey-Archer's (TPE:1526) ROCE trend, we were pretty happy with what we saw.

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. To calculate this metric for Sun Race Sturmey-Archer, this is the formula:

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

0.11 = NT$127m ÷ (NT$1.7b - NT$531m) (Based on the trailing twelve months to September 2020).

Therefore, Sun Race Sturmey-Archer has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 13% generated by the Leisure industry.

See our latest analysis for Sun Race Sturmey-Archer

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 Sun Race Sturmey-Archer, check out these free graphs here.

So How Is Sun Race Sturmey-Archer's ROCE Trending?

While the returns on capital are good, they haven't moved much. The company has consistently earned 11% for the last five years, and the capital employed within the business has risen 35% in that time. 11% is a pretty standard return, and it provides some comfort knowing that Sun Race Sturmey-Archer has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Key Takeaway

To sum it up, Sun Race Sturmey-Archer has simply been reinvesting capital steadily, at those decent rates of return. And the stock has done incredibly well with a 297% return over the last five years, so long term investors are no doubt ecstatic with that result. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

Sun Race Sturmey-Archer could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

While Sun Race Sturmey-Archer 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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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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