We're Watching These Trends At International CSRC Investment Holdings (TPE:2104)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating International CSRC Investment Holdings (TPE:2104), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What is it?

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 International CSRC Investment Holdings, this is the formula:

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

0.0088 = NT$341m ÷ (NT$50b - NT$11b) (Based on the trailing twelve months to September 2020).

So, International CSRC Investment Holdings has an ROCE of 0.9%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 6.7%.

View our latest analysis for International CSRC Investment Holdings

Above you can see how the current ROCE for International CSRC Investment Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for International CSRC Investment Holdings.

What Does the ROCE Trend For International CSRC Investment Holdings Tell Us?

On the surface, the trend of ROCE at International CSRC Investment Holdings doesn't inspire confidence. Around five years ago the returns on capital were 9.3%, but since then they've fallen to 0.9%. Given the business is employing more capital while revenue has slipped, this is a bit concerning. 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.

What We Can Learn From International CSRC Investment Holdings' ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for International CSRC Investment Holdings have fallen, meanwhile the business is employing more capital than it was five years ago. Yet despite these concerning fundamentals, the stock has performed strongly with a 61% return over the last five years, so investors appear very optimistic. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

If you're still interested in International CSRC Investment Holdings it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

While International CSRC Investment Holdings 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 International CSRC Investment Holdings, 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.