Does Channel Well TechnologyLtd (GTSM:3078) Have The DNA Of A Multi-Bagger?

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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 Channel Well TechnologyLtd (GTSM:3078) we really liked what we saw.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Channel Well TechnologyLtd, this is the formula:

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

0.21 = NT$1.1b ÷ (NT$8.6b - NT$3.3b) (Based on the trailing twelve months to September 2020).

Thus, Channel Well TechnologyLtd has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Electronic industry average of 11%.

View our latest analysis for Channel Well TechnologyLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Channel Well TechnologyLtd's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Channel Well TechnologyLtd, check out these free graphs here.

What Does the ROCE Trend For Channel Well TechnologyLtd Tell Us?

Channel Well TechnologyLtd is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 21%. Basically the business is earning more per dollar of capital invested and in addition to that, 33% more capital is being employed now too. So we're very much inspired by what we're seeing at Channel Well TechnologyLtd thanks to its ability to profitably reinvest capital.

The Key Takeaway

All in all, it's terrific to see that Channel Well TechnologyLtd is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 212% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing to note, we've identified 2 warning signs with Channel Well TechnologyLtd and understanding them should be part of your investment process.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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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