Stock Analysis

Has Kanpai (GTSM:1269) Got What It Takes To Become A Multi-Bagger?

TPEX:1269
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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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. However, after investigating Kanpai (GTSM:1269), we don't think it's current trends fit the mold of a multi-bagger.

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. The formula for this calculation on Kanpai is:

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

0.058 = NT$85m ÷ (NT$2.1b - NT$630m) (Based on the trailing twelve months to June 2020).

Thus, Kanpai has an ROCE of 5.8%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.6%.

Check out our latest analysis for Kanpai

roce
GTSM:1269 Return on Capital Employed December 1st 2020

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're interested in investigating Kanpai's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

When we looked at the ROCE trend at Kanpai, we didn't gain much confidence. To be more specific, ROCE has fallen from 12% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line On Kanpai's ROCE

Bringing it all together, while we're somewhat encouraged by Kanpai's reinvestment in its own business, we're aware that returns are shrinking. And in the last three years, the stock has given away 37% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Kanpai has the makings of a multi-bagger.

If you want to continue researching Kanpai, you might be interested to know about the 5 warning signs that our analysis has discovered.

While Kanpai 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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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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