ASE Technology Holding (TWSE:3711) Might Have The Makings Of A Multi-Bagger

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. Speaking of which, we noticed some great changes in ASE Technology Holding's (TWSE:3711) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

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)

0.083 = NT$40b ÷ (NT$715b - NT$236b) (Based on the trailing twelve months to September 2024).

Therefore, ASE Technology Holding has an ROCE of 8.3%. In absolute terms, that's a low return but it's around the Semiconductor industry average of 9.3%.

View our latest analysis for ASE Technology Holding

Above you can see how the current ROCE for ASE Technology Holding 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 ASE Technology Holding for free.

The Trend Of ROCE

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 8.3%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 27%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Key Takeaway

All in all, it's terrific to see that ASE Technology Holding is reaping the rewards from prior investments and is growing its capital base. And a remarkable 152% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if ASE Technology Holding can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 1 warning sign facing ASE Technology Holding that you might find interesting.

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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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.