Has LandMark Optoelectronics (GTSM:3081) Got What It Takes To Become A Multi-Bagger?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating LandMark Optoelectronics (GTSM:3081), we don't think it's current trends fit the mold of a multi-bagger.

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. To calculate this metric for LandMark Optoelectronics, this is the formula:

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

0.15 = NT$708m ÷ (NT$5.2b - NT$519m) (Based on the trailing twelve months to December 2020).

Therefore, LandMark Optoelectronics has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Semiconductor industry average of 10% it's much better.

Check out our latest analysis for LandMark Optoelectronics

Historical performance is a great place to start when researching a stock so above you can see the gauge for LandMark Optoelectronics' ROCE against it's prior returns. If you'd like to look at how LandMark Optoelectronics has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at LandMark Optoelectronics doesn't inspire confidence. To be more specific, ROCE has fallen from 33% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On LandMark Optoelectronics' ROCE

Bringing it all together, while we're somewhat encouraged by LandMark Optoelectronics' reinvestment in its own business, we're aware that returns are shrinking. And in the last five years, the stock has given away 27% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

If you'd like to know about the risks facing LandMark Optoelectronics, we've discovered 1 warning sign that you should be aware of.

While LandMark Optoelectronics 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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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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