The Return Trends At Integrated Service Technology (GTSM:3289) Look Promising

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Integrated Service Technology (GTSM:3289) looks quite promising in regards to its trends of return on capital.

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 Integrated Service Technology, this is the formula:

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

0.04 = NT$233m ÷ (NT$7.4b - NT$1.6b) (Based on the trailing twelve months to December 2020).

Therefore, Integrated Service Technology has an ROCE of 4.0%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 11%.

View our latest analysis for Integrated Service Technology

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

So How Is Integrated Service Technology's ROCE Trending?

We're delighted to see that Integrated Service Technology is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 4.0% which is a sight for sore eyes. In addition to that, Integrated Service Technology is employing 112% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

What We Can Learn From Integrated Service Technology's ROCE

To the delight of most shareholders, Integrated Service Technology has now broken into profitability. Astute investors may have an opportunity here because the stock has declined 47% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a final note, we found 3 warning signs for Integrated Service Technology (1 is concerning) you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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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