Stock Analysis

Is There More Growth In Store For Winstek Semiconductor's (GTSM:3265) Returns On Capital?

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TPEX:3265
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If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Winstek Semiconductor (GTSM:3265) looks quite promising in regards to its trends of return on capital.

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 Winstek Semiconductor:

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

0.14 = NT$720m ÷ (NT$5.9b - NT$699m) (Based on the trailing twelve months to September 2020).

Therefore, Winstek Semiconductor has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 10% generated by the Semiconductor industry.

Check out our latest analysis for Winstek Semiconductor

roce
GTSM:3265 Return on Capital Employed January 25th 2021

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Winstek Semiconductor's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

We're pretty happy with how the ROCE has been trending at Winstek Semiconductor. The data shows that returns on capital have increased by 558% over the trailing five years. The company is now earning NT$0.1 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 30% less capital than it was five years ago. Winstek Semiconductor may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

The Bottom Line On Winstek Semiconductor's ROCE

In summary, it's great to see that Winstek Semiconductor has been able to turn things around and earn higher returns on lower amounts of capital. And with a respectable 100% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing to note, we've identified 1 warning sign with Winstek Semiconductor and understanding it should be part of your investment process.

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About TPEX:3265

Winstek Semiconductor

Winstek Semiconductor Co., Ltd., together with its subsidiaries, engages in the research, development, and testing of integrated circuits in Taiwan.

Flawless balance sheet and good value.

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