Should We Be Excited About The Trends Of Returns At Avalue Technology (GTSM:3479)?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over Avalue Technology's (GTSM:3479) trend of ROCE, we liked what we saw.

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. Analysts use this formula to calculate it for Avalue Technology:

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

0.16 = NT$423m ÷ (NT$3.7b - NT$952m) (Based on the trailing twelve months to September 2020).

Thus, Avalue Technology has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 12% generated by the Tech industry.

View our latest analysis for Avalue Technology

Above you can see how the current ROCE for Avalue Technology compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Avalue Technology.

So How Is Avalue Technology's ROCE Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 16% and the business has deployed 27% more capital into its operations. Since 16% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

Our Take On Avalue Technology's ROCE

To sum it up, Avalue Technology has simply been reinvesting capital steadily, at those decent rates of return. However, despite the favorable fundamentals, the stock has fallen 14% over the last five years, so there might be an opportunity here for astute investors. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

One more thing to note, we've identified 1 warning sign with Avalue Technology and understanding it should be part of your investment process.

While Avalue Technology 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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