Investors Will Want Ocean Plastics' (TPE:1321) Growth In ROCE To Persist

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Ocean Plastics (TPE:1321) 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. The formula for this calculation on Ocean Plastics is:

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

0.021 = NT$233m ÷ (NT$12b - NT$1.0b) (Based on the trailing twelve months to December 2020).

So, Ocean Plastics has an ROCE of 2.1%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 7.7%.

See our latest analysis for Ocean Plastics

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Ocean Plastics has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Ocean Plastics' ROCE Trend?

Ocean Plastics has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 2.1% on its capital. In addition to that, Ocean Plastics is employing 23% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line

In summary, it's great to see that Ocean Plastics has managed to break into profitability and is continuing to reinvest in its business. Considering the stock has delivered 35% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One final note, you should learn about the 2 warning signs we've spotted with Ocean Plastics (including 1 which is concerning) .

While Ocean Plastics isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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