The Trends At Tai Shing Electronics Components (GTSM:3426) That You Should Know About

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Tai Shing Electronics Components (GTSM:3426), we don't think it's current trends fit the mold of a multi-bagger.

What is 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 Tai Shing Electronics Components:

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

0.086 = NT$65m ÷ (NT$968m - NT$219m) (Based on the trailing twelve months to September 2020).

Therefore, Tai Shing Electronics Components has an ROCE of 8.6%. On its own, that's a low figure but it's around the 11% average generated by the Electronic industry.

See our latest analysis for Tai Shing Electronics Components

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

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at Tai Shing Electronics Components doesn't inspire confidence. Over the last five years, returns on capital have decreased to 8.6% from 16% five years ago. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

The Bottom Line

From the above analysis, we find it rather worrisome that returns on capital and sales for Tai Shing Electronics Components have fallen, meanwhile the business is employing more capital than it was five years ago. Investors must expect better things on the horizon though because the stock has risen 35% in the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

One final note, you should learn about the 4 warning signs we've spotted with Tai Shing Electronics Components (including 2 which shouldn't be ignored) .

While Tai Shing Electronics Components 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. 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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