Has Ampoc Far-East (TPE:2493) Got What It Takes To Become A Multi-Bagger?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Ampoc Far-East (TPE:2493) and its ROCE trend, we weren't exactly thrilled.

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 Ampoc Far-East, this is the formula:

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

0.15 = NT$374m ÷ (NT$3.5b - NT$1.1b) (Based on the trailing twelve months to September 2020).

Thus, Ampoc Far-East has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 11% generated by the Semiconductor industry.

Check out our latest analysis for Ampoc Far-East

Historical performance is a great place to start when researching a stock so above you can see the gauge for Ampoc Far-East's ROCE against it's prior returns. If you're interested in investigating Ampoc Far-East's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Over the past five years, Ampoc Far-East's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if Ampoc Far-East doesn't end up being a multi-bagger in a few years time.

The Bottom Line On Ampoc Far-East's ROCE

In a nutshell, Ampoc Far-East has been trudging along with the same returns from the same amount of capital over the last five years. Yet to long term shareholders the stock has gifted them an incredible 123% return in the last five years, so the market appears to be rosy about its future. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

If you want to know some of the risks facing Ampoc Far-East we've found 2 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

While Ampoc Far-East isn't earning the highest return, check out this free list of companies that are 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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