The Trends At ASE Technology Holding (TPE:3711) That You Should Know About

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. In light of that, when we looked at ASE Technology Holding (TPE:3711) and its ROCE trend, we weren't exactly thrilled.

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

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

0.085 = NT$35b ÷ (NT$584b - NT$173b) (Based on the trailing twelve months to December 2020).

Thus, ASE Technology Holding has an ROCE of 8.5%. On its own, that's a low figure but it's around the 10% average generated by the Semiconductor industry.

Check out our latest analysis for ASE Technology Holding

In the above chart we have measured ASE Technology Holding's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

In terms of ASE Technology Holding's historical ROCE trend, it doesn't exactly demand attention. Over the past five years, ROCE has remained relatively flat at around 8.5% and the business has deployed 70% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Key Takeaway

In conclusion, ASE Technology Holding has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has gained an impressive 78% over the last year, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

ASE Technology Holding does have some risks though, and we've spotted 1 warning sign for ASE Technology Holding that you might be interested in.

While ASE Technology Holding 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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