The Returns At Elite Advanced Laser (TPE:3450) Provide Us With Signs Of What's To Come

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. However, after investigating Elite Advanced Laser (TPE:3450), we don't think it's current trends fit the mold of a multi-bagger.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Elite Advanced Laser:

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

0.13 = NT$830m ÷ (NT$8.1b - NT$1.8b) (Based on the trailing twelve months to September 2020).

Thus, Elite Advanced Laser has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 10% generated by the Semiconductor industry.

View our latest analysis for Elite Advanced Laser

In the above chart we have measured Elite Advanced Laser's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Elite Advanced Laser.

What Can We Tell From Elite Advanced Laser's ROCE Trend?

On the surface, the trend of ROCE at Elite Advanced Laser doesn't inspire confidence. Over the last five years, returns on capital have decreased to 13% from 34% five years ago. However it looks like Elite Advanced Laser might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line On Elite Advanced Laser's ROCE

To conclude, we've found that Elite Advanced Laser is reinvesting in the business, but returns have been falling. Unsurprisingly then, the total return to shareholders over the last five years has been flat. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

Elite Advanced Laser could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

While Elite Advanced Laser may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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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