Shareholders Would Enjoy A Repeat Of ASIX Electronics' (GTSM:3169) Recent Growth In Returns

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. And in light of that, the trends we're seeing at ASIX Electronics' (GTSM:3169) look very promising so lets take a look.

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

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 ASIX Electronics:

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

0.20 = NT$187m ÷ (NT$1.1b - NT$150m) (Based on the trailing twelve months to December 2020).

So, ASIX Electronics has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Semiconductor industry average of 11%.

See our latest analysis for ASIX Electronics

Historical performance is a great place to start when researching a stock so above you can see the gauge for ASIX Electronics' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of ASIX Electronics, check out these free graphs here.

What Does the ROCE Trend For ASIX Electronics Tell Us?

ASIX Electronics is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 116% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Key Takeaway

As discussed above, ASIX Electronics appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if ASIX Electronics can keep these trends up, it could have a bright future ahead.

ASIX Electronics does have some risks though, and we've spotted 2 warning signs for ASIX Electronics that you might be interested in.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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