Will Zilltek Technology (GTSM:6679) Become A Multi-Bagger?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at the ROCE trend of Zilltek Technology (GTSM:6679) we really liked what we saw.

What is Return On Capital Employed (ROCE)?

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. To calculate this metric for Zilltek Technology, this is the formula:

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

0.30 = NT$327m ÷ (NT$1.4b - NT$273m) (Based on the trailing twelve months to September 2020).

Therefore, Zilltek Technology has an ROCE of 30%. In absolute terms that's a great return and it's even better than the Semiconductor industry average of 10%.

See our latest analysis for Zilltek Technology

Above you can see how the current ROCE for Zilltek Technology compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Zilltek Technology's ROCE Trending?

The fact that Zilltek Technology is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 30% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Zilltek Technology is utilizing 438% more capital than it was five years ago. 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.

On a related note, the company's ratio of current liabilities to total assets has decreased to 20%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Zilltek Technology has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line

In summary, it's great to see that Zilltek Technology has managed to break into profitability and is continuing to reinvest in its business. And with a respectable 42% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation that compares the share price and estimated value.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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