Trends At Appro Photoelectron (GTSM:6560) Point To A Promising Future

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. Ergo, when we looked at the ROCE trends at Appro Photoelectron (GTSM:6560), we liked what we saw.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Appro Photoelectron:

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

0.21 = NT$77m ÷ (NT$542m - NT$177m) (Based on the trailing twelve months to September 2020).

So, Appro Photoelectron 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%.

Check out our latest analysis for Appro Photoelectron

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Appro Photoelectron, check out these free graphs here.

The Trend Of ROCE

In terms of Appro Photoelectron's history of ROCE, it's quite impressive. The company has consistently earned 21% for the last five years, and the capital employed within the business has risen 40% in that time. Now considering ROCE is an attractive 21%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Appro Photoelectron can keep this up, we'd be very optimistic about its future.

Our Take On Appro Photoelectron's ROCE

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. And long term investors would be thrilled with the 132% 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.

Appro Photoelectron does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those is potentially serious...

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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