Dynamic Medical Technologies (GTSM:4138) Has Some Way To Go To Become A Multi-Bagger

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Dynamic Medical Technologies (GTSM:4138) and its ROCE trend, we weren't exactly thrilled.

Understanding 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. The formula for this calculation on Dynamic Medical Technologies is:

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

0.089 = NT$141m ÷ (NT$2.1b - NT$556m) (Based on the trailing twelve months to December 2020).

Thus, Dynamic Medical Technologies has an ROCE of 8.9%. In absolute terms, that's a low return and it also under-performs the Medical Equipment industry average of 12%.

Check out our latest analysis for Dynamic Medical Technologies

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

What The Trend Of ROCE Can Tell Us

Things have been pretty stable at Dynamic Medical Technologies, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Dynamic Medical Technologies in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

The Bottom Line On Dynamic Medical Technologies' ROCE

In summary, Dynamic Medical Technologies isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Unsurprisingly, the stock has only gained 12% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

Dynamic Medical Technologies does have some risks, we noticed 3 warning signs (and 1 which is a bit concerning) we think you should know about.

While Dynamic Medical Technologies 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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