Is Wei Chih Steel IndustrialLtd (TPE:2028) A Future Multi-bagger?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. So when we looked at Wei Chih Steel IndustrialLtd (TPE:2028) and its trend of ROCE, we really liked what we saw.

Understanding 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 Wei Chih Steel IndustrialLtd:

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

0.07 = NT$311m ÷ (NT$6.5b - NT$2.0b) (Based on the trailing twelve months to September 2020).

So, Wei Chih Steel IndustrialLtd has an ROCE of 7.0%. In absolute terms, that's a low return, but it's much better than the Metals and Mining industry average of 3.6%.

Check out our latest analysis for Wei Chih Steel IndustrialLtd

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 Wei Chih Steel IndustrialLtd 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 Wei Chih Steel IndustrialLtd's ROCE Trend?

We're delighted to see that Wei Chih Steel IndustrialLtd 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 7.0% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Wei Chih Steel IndustrialLtd is utilizing 29% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

What We Can Learn From Wei Chih Steel IndustrialLtd's ROCE

In summary, it's great to see that Wei Chih Steel IndustrialLtd has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a staggering 777% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to continue researching Wei Chih Steel IndustrialLtd, you might be interested to know about the 3 warning signs that our analysis has discovered.

While Wei Chih Steel IndustrialLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

If you decide to trade Wei Chih Steel IndustrialLtd, 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.