The Returns At Crystalvue Medical (GTSM:6527) Provide Us With Signs Of What's To Come

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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 Crystalvue Medical (GTSM:6527), we don't think it's current trends fit the mold of a multi-bagger.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Crystalvue Medical:

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

0.094 = NT$66m ÷ (NT$812m - NT$114m) (Based on the trailing twelve months to September 2020).

So, Crystalvue Medical has an ROCE of 9.4%. On its own, that's a low figure but it's around the 12% average generated by the Medical Equipment industry.

View our latest analysis for Crystalvue Medical

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

How Are Returns Trending?

When we looked at the ROCE trend at Crystalvue Medical, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 9.4% from 13% five years ago. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

The Bottom Line

In summary, we're somewhat concerned by Crystalvue Medical's diminishing returns on increasing amounts of capital. Despite the concerning underlying trends, the stock has actually gained 33% over the last five years, so it might be that the investors are expecting the trends to reverse. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

On a final note, we found 4 warning signs for Crystalvue Medical (1 is potentially serious) you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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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