We're Watching These Trends At Phoenix Silicon International (TPE:8028)

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Phoenix Silicon International (TPE:8028), it didn't seem to tick all of these boxes.

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. The formula for this calculation on Phoenix Silicon International is:

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

0.025 = NT$106m ÷ (NT$5.0b - NT$832m) (Based on the trailing twelve months to September 2020).

So, Phoenix Silicon International has an ROCE of 2.5%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 11%.

Check out our latest analysis for Phoenix Silicon International

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

So How Is Phoenix Silicon International's ROCE Trending?

When we looked at the ROCE trend at Phoenix Silicon International, we didn't gain much confidence. Around five years ago the returns on capital were 13%, but since then they've fallen to 2.5%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Phoenix Silicon International's ROCE

To conclude, we've found that Phoenix Silicon International is reinvesting in the business, but returns have been falling. Yet to long term shareholders the stock has gifted them an incredible 194% 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.

On a separate note, we've found 5 warning signs for Phoenix Silicon International you'll probably want to know about.

While Phoenix Silicon International 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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