Yeedex Electronic (GTSM:7556) Has Some Way To Go To Become A Multi-Bagger

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. That's why when we briefly looked at Yeedex Electronic's (GTSM:7556) ROCE trend, we were pretty happy with what we saw.

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 Yeedex Electronic is:

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

0.14 = NT$104m ÷ (NT$856m - NT$123m) (Based on the trailing twelve months to December 2020).

Thus, Yeedex Electronic has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 11% generated by the Semiconductor industry.

View our latest analysis for Yeedex Electronic

In the above chart we have measured Yeedex Electronic's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Yeedex Electronic here for free.

What Can We Tell From Yeedex Electronic's ROCE Trend?

While the returns on capital are good, they haven't moved much. Over the past four years, ROCE has remained relatively flat at around 14% and the business has deployed 246% more capital into its operations. 14% is a pretty standard return, and it provides some comfort knowing that Yeedex Electronic has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

One more thing to note, even though ROCE has remained relatively flat over the last four years, the reduction in current liabilities to 14% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

In Conclusion...

In the end, Yeedex Electronic has proven its ability to adequately reinvest capital at good rates of return. And the stock has done incredibly well with a 137% return over the last year, so long term investors are no doubt ecstatic with that result. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

One more thing, we've spotted 2 warning signs facing Yeedex Electronic that you might find interesting.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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