Has Alexander Marine (TPE:8478) Got What It Takes To Become A Multi-Bagger?

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. However, after investigating Alexander Marine (TPE:8478), we don't think it's current trends fit the mold of a multi-bagger.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Alexander Marine is:

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

0.063 = NT$251m ÷ (NT$7.2b - NT$3.2b) (Based on the trailing twelve months to September 2020).

Thus, Alexander Marine has an ROCE of 6.3%. In absolute terms, that's a low return and it also under-performs the Leisure industry average of 12%.

View our latest analysis for Alexander Marine

Historical performance is a great place to start when researching a stock so above you can see the gauge for Alexander Marine's ROCE against it's prior returns. If you're interested in investigating Alexander Marine's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Alexander Marine Tell Us?

The returns on capital haven't changed much for Alexander Marine in recent years. The company has consistently earned 6.3% for the last five years, and the capital employed within the business has risen 119% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

On a side note, Alexander Marine's current liabilities are still rather high at 44% of total assets. 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. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line

Long story short, while Alexander Marine has been reinvesting its capital, the returns that it's generating haven't increased. Since the stock has declined 54% over the last five years, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

If you'd like to know more about Alexander Marine, we've spotted 4 warning signs, and 2 of them are concerning.

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

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