Stock Analysis

Should We Be Excited About The Trends Of Returns At INTAI Technology (GTSM:4163)?

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TPEX:4163
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If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think INTAI Technology (GTSM:4163) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Return On Capital Employed (ROCE): What is it?

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 INTAI Technology is:

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

0.13 = NT$342m ÷ (NT$3.3b - NT$723m) (Based on the trailing twelve months to September 2020).

Therefore, INTAI Technology has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Medical Equipment industry average of 12%.

View our latest analysis for INTAI Technology

roce
GTSM:4163 Return on Capital Employed March 11th 2021

Historical performance is a great place to start when researching a stock so above you can see the gauge for INTAI Technology's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of INTAI Technology, check out these free graphs here.

So How Is INTAI Technology's ROCE Trending?

On the surface, the trend of ROCE at INTAI Technology doesn't inspire confidence. Around five years ago the returns on capital were 21%, but since then they've fallen to 13%. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

On a side note, INTAI Technology has done well to pay down its current liabilities to 22% of total assets. That could partly explain why the ROCE has dropped. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

The Bottom Line

We're a bit apprehensive about INTAI Technology because despite more capital being deployed in the business, returns on that capital and sales have both fallen. Long term shareholders who've owned the stock over the last five years have experienced a 11% depreciation in their investment, so it appears the market might not like these trends either. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

On a final note, we've found 1 warning sign for INTAI Technology that we think you should be aware of.

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About TPEX:4163

INTAI Technology

INTAI Technology Corporation offers a range of products for the automotive, aerospace, precision hardware, medical device, and electronic communication industries in Taiwan and internationally.

Excellent balance sheet and good value.

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