Will The ROCE Trend At Airmate (Cayman) International Co (TPE:1626) Continue?

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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. So on that note, Airmate (Cayman) International Co (TPE:1626) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for Airmate (Cayman) International Co, this is the formula:

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

0.043 = NT$176m ÷ (NT$9.4b - NT$5.3b) (Based on the trailing twelve months to September 2020).

So, Airmate (Cayman) International Co has an ROCE of 4.3%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 10%.

View our latest analysis for Airmate (Cayman) International Co

Historical performance is a great place to start when researching a stock so above you can see the gauge for Airmate (Cayman) International Co's ROCE against it's prior returns. If you'd like to look at how Airmate (Cayman) International Co has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

We're delighted to see that Airmate (Cayman) International Co is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 4.3% on its capital. In addition to that, Airmate (Cayman) International Co is employing 25% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

Another thing to note, Airmate (Cayman) International Co has a high ratio of current liabilities to total assets of 57%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From Airmate (Cayman) International Co's ROCE

In summary, it's great to see that Airmate (Cayman) International Co has managed to break into profitability and is continuing to reinvest in its business. Since the stock has only returned 22% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

On a final note, we've found 2 warning signs for Airmate (Cayman) International Co that we think you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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