We Think Excelliance MOS (GTSM:5299) Might Have The DNA Of A Multi-Bagger

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of Excelliance MOS (GTSM:5299) looks great, so lets see what the trend can tell us.

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 Excelliance MOS:

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

0.35 = NT$427m ÷ (NT$1.8b - NT$542m) (Based on the trailing twelve months to December 2020).

So, Excelliance MOS has an ROCE of 35%. 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 Excelliance MOS

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

How Are Returns Trending?

Excelliance MOS has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 35% on its capital. Not only that, but the company is utilizing 165% more capital than before, but that's to be expected from a company 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.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. The current liabilities has increased to 31% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

In Conclusion...

Long story short, we're delighted to see that Excelliance MOS' reinvestment activities have paid off and the company is now profitable. And a remarkable 1,729% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Excelliance MOS does have some risks though, and we've spotted 2 warning signs for Excelliance MOS 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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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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