The Trends At Apogee Optocom (GTSM:6426) That You Should Know About

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, the ROCE of Apogee Optocom (GTSM:6426) looks decent, right now, so lets see what the trend of returns can tell us.

Return On Capital Employed (ROCE): What is it?

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. Analysts use this formula to calculate it for Apogee Optocom:

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

0.14 = NT$187m ÷ (NT$1.5b - NT$158m) (Based on the trailing twelve months to September 2020).

Thus, Apogee Optocom has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 11% it's much better.

View our latest analysis for Apogee Optocom

Historical performance is a great place to start when researching a stock so above you can see the gauge for Apogee Optocom's ROCE against it's prior returns. If you'd like to look at how Apogee Optocom has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

While the current returns on capital are decent, they haven't changed much. The company has employed 114% more capital in the last five years, and the returns on that capital have remained stable at 14%. 14% is a pretty standard return, and it provides some comfort knowing that Apogee Optocom has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

Our Take On Apogee Optocom's ROCE

To sum it up, Apogee Optocom has simply been reinvesting capital steadily, at those decent rates of return. And long term investors would be thrilled with the 262% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

If you'd like to know more about Apogee Optocom, we've spotted 2 warning signs, and 1 of them shouldn't be ignored.

While Apogee Optocom may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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