We Like GeneReach Biotechnology's (GTSM:4171) Returns And Here's How They're Trending

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of GeneReach Biotechnology (GTSM:4171) looks great, so lets see what the trend can tell us.

Understanding 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 GeneReach Biotechnology, this is the formula:

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

0.31 = NT$272m ÷ (NT$1.1b - NT$208m) (Based on the trailing twelve months to September 2020).

Therefore, GeneReach Biotechnology has an ROCE of 31%. In absolute terms that's a great return and it's even better than the Medical Equipment industry average of 12%.

See our latest analysis for GeneReach Biotechnology

In the above chart we have measured GeneReach Biotechnology's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering GeneReach Biotechnology here for free.

What Can We Tell From GeneReach Biotechnology's ROCE Trend?

We're delighted to see that GeneReach Biotechnology is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 31% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, GeneReach Biotechnology is utilizing 94% more capital than it was five years ago. 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.

The Key Takeaway

Long story short, we're delighted to see that GeneReach Biotechnology's reinvestment activities have paid off and the company is now profitable. Since the stock has returned a staggering 390% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation on our platform that is definitely worth checking out.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

If you decide to trade GeneReach Biotechnology, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.