We're Watching These Trends At LandMark Optoelectronics (GTSM:3081)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Although, when we looked at LandMark Optoelectronics (GTSM:3081), it didn't seem to tick all of these boxes.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for LandMark Optoelectronics:

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

0.13 = NT$555m ÷ (NT$4.8b - NT$385m) (Based on the trailing twelve months to September 2020).

Thus, LandMark Optoelectronics has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 10% generated by the Semiconductor industry.

View 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 Can We Tell From LandMark Optoelectronics' ROCE Trend?

On the surface, the trend of ROCE at LandMark Optoelectronics doesn't inspire confidence. To be more specific, ROCE has fallen from 30% 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.

What We Can Learn From LandMark Optoelectronics' ROCE

To conclude, we've found that LandMark Optoelectronics is reinvesting in the business, but returns have been falling. Since the stock has declined 17% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think LandMark Optoelectronics has the makings of a multi-bagger.

LandMark Optoelectronics does have some risks though, and we've spotted 1 warning sign for LandMark Optoelectronics that you might be interested in.

While LandMark Optoelectronics 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.

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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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