Has Ardentec (GTSM:3264) Got What It Takes To Become A Multi-Bagger?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over Ardentec's (GTSM:3264) trend of ROCE, we liked what we saw.

Understanding 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 Ardentec:

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

0.11 = NT$2.0b ÷ (NT$22b - NT$3.7b) (Based on the trailing twelve months to September 2020).

Therefore, Ardentec has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Semiconductor industry average of 10%.

Check out our latest analysis for Ardentec

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

What Does the ROCE Trend For Ardentec Tell Us?

While the current returns on capital are decent, they haven't changed much. The company has employed 55% more capital in the last five years, and the returns on that capital have remained stable at 11%. Since 11% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

Our Take On Ardentec's ROCE

To sum it up, Ardentec has simply been reinvesting capital steadily, at those decent rates of return. And long term investors would be thrilled with the 111% return they've received over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

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

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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