The Returns At Ampoc Far-East (TPE:2493) Provide Us With Signs Of What's To Come

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think Ampoc Far-East (TPE:2493) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding Return On Capital Employed (ROCE)

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 Ampoc Far-East:

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%. In absolute terms, that's a satisfactory return, but compared to the Semiconductor industry average of 10% it's much better.

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'd like to look at how Ampoc Far-East has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Ampoc Far-East Tell Us?

Things have been pretty stable at Ampoc Far-East, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So unless we see a substantial change at Ampoc Far-East in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

What We Can Learn From Ampoc Far-East's ROCE

In summary, Ampoc Far-East isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Yet to long term shareholders the stock has gifted them an incredible 114% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you'd like to know more about Ampoc Far-East, we've spotted 2 warning signs, and 1 of them makes us a bit uncomfortable.

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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