Is Shih Her Technologies (GTSM:3551) Likely To Turn Things Around?

What are the early trends we should look for to identify a stock that could 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. Having said that, from a first glance at Shih Her Technologies (GTSM:3551) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Shih Her Technologies is:

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

0.098 = NT$337m ÷ (NT$4.0b - NT$549m) (Based on the trailing twelve months to September 2020).

So, Shih Her Technologies has an ROCE of 9.8%. On its own, that's a low figure but it's around the 11% average generated by the Semiconductor industry.

View our latest analysis for Shih Her Technologies

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

What The Trend Of ROCE Can Tell Us

There hasn't been much to report for Shih Her Technologies' returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if Shih Her Technologies doesn't end up being a multi-bagger in a few years time.

Our Take On Shih Her Technologies' ROCE

In summary, Shih Her Technologies isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Although the market must be expecting these trends to improve because the stock has gained 66% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

One more thing, we've spotted 1 warning sign facing Shih Her Technologies that you might find interesting.

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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