We Like These Underlying Trends At Asia Polymer (TPE:1308)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Asia Polymer (TPE:1308) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for Asia Polymer, this is the formula:

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

0.054 = NT$769m ÷ (NT$16b - NT$1.7b) (Based on the trailing twelve months to September 2020).

Thus, Asia Polymer has an ROCE of 5.4%. In absolute terms, that's a low return but it's around the Chemicals industry average of 6.7%.

See our latest analysis for Asia Polymer

Above you can see how the current ROCE for Asia Polymer compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last five years to 5.4%. Basically the business is earning more per dollar of capital invested and in addition to that, 57% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Asia Polymer's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Asia Polymer has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 47% return over the last five years. In light of that, we think it's worth looking further into this stock because if Asia Polymer can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 1 warning sign facing Asia Polymer that you might find interesting.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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