Shareholders Would Enjoy A Repeat Of Visual Photonics Epitaxy's (TWSE:2455) Recent Growth In Returns

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. So when we looked at the ROCE trend of Visual Photonics Epitaxy (TWSE:2455) we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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 Visual Photonics Epitaxy:

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

0.23 = NT$829m ÷ (NT$4.8b - NT$1.3b) (Based on the trailing twelve months to June 2024).

So, Visual Photonics Epitaxy has an ROCE of 23%. That's a fantastic return and not only that, it outpaces the average of 8.8% earned by companies in a similar industry.

Check out our latest analysis for Visual Photonics Epitaxy

Above you can see how the current ROCE for Visual Photonics Epitaxy compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Visual Photonics Epitaxy for free.

What Can We Tell From Visual Photonics Epitaxy's ROCE Trend?

We like the trends that we're seeing from Visual Photonics Epitaxy. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 23%. The amount of capital employed has increased too, by 25%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Key Takeaway

All in all, it's terrific to see that Visual Photonics Epitaxy is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 76% return over the last five years. In light of that, we think it's worth looking further into this stock because if Visual Photonics Epitaxy can keep these trends up, it could have a bright future ahead.

Visual Photonics Epitaxy does have some risks though, and we've spotted 1 warning sign for Visual Photonics Epitaxy that you might be interested in.

Visual Photonics Epitaxy is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.