Has JMC Electronics (TPE:6552) Got What It Takes To Become A Multi-Bagger?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. However, after investigating JMC Electronics (TPE:6552), we don't think it's current trends fit the mold of a multi-bagger.

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. To calculate this metric for JMC Electronics, this is the formula:

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

0.082 = NT$251m ÷ (NT$4.1b - NT$1.1b) (Based on the trailing twelve months to September 2020).

So, JMC Electronics has an ROCE of 8.2%. In absolute terms, that's a low return but it's around the Semiconductor industry average of 10%.

View our latest analysis for JMC Electronics

Historical performance is a great place to start when researching a stock so above you can see the gauge for JMC Electronics' ROCE against it's prior returns. If you'd like to look at how JMC Electronics has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From JMC Electronics' ROCE Trend?

The returns on capital haven't changed much for JMC Electronics in recent years. The company has consistently earned 8.2% for the last five years, and the capital employed within the business has risen 123% in that time. 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.

Our Take On JMC Electronics' ROCE

In conclusion, JMC Electronics has been investing more capital into the business, but returns on that capital haven't increased. Although the market must be expecting these trends to improve because the stock has gained 60% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

On a separate note, we've found 3 warning signs for JMC Electronics you'll probably want to know about.

While JMC Electronics 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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