Will the Promising Trends At Amazing Microelectronic (GTSM:6411) Continue?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Amazing Microelectronic's (GTSM:6411) returns on capital, so let's have a look.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Amazing Microelectronic is:

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

0.19 = NT$593m ÷ (NT$4.0b - NT$855m) (Based on the trailing twelve months to September 2020).

So, Amazing Microelectronic has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Semiconductor industry average of 11% it's much better.

View our latest analysis for Amazing Microelectronic

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

How Are Returns Trending?

Investors would be pleased with what's happening at Amazing Microelectronic. The data shows that returns on capital have increased substantially over the last five years to 19%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 126%. So we're very much inspired by what we're seeing at Amazing Microelectronic thanks to its ability to profitably reinvest capital.

What We Can Learn From Amazing Microelectronic's ROCE

To sum it up, Amazing Microelectronic has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know more about Amazing Microelectronic, we've spotted 3 warning signs, and 1 of them is a bit unpleasant.

While Amazing Microelectronic isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

If you decide to trade Amazing Microelectronic, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.