We Like VIA Labs' (GTSM:6756) Returns And Here's How They're Trending

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. So when we looked at the ROCE trend of VIA Labs (GTSM:6756) we really liked what we saw.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on VIA Labs is:

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

0.42 = NT$378m ÷ (NT$1.3b - NT$384m) (Based on the trailing twelve months to September 2020).

So, VIA Labs has an ROCE of 42%. That's a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.

See our latest analysis for VIA Labs

Historical performance is a great place to start when researching a stock so above you can see the gauge for VIA Labs' ROCE against it's prior returns. If you're interested in investigating VIA Labs' past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From VIA Labs' ROCE Trend?

The trends we've noticed at VIA Labs are quite reassuring. Over the last three years, returns on capital employed have risen substantially to 42%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 69%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Key Takeaway

To sum it up, VIA Labs has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 174% to shareholders over the last year, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing, we've spotted 1 warning sign facing VIA Labs that you might find interesting.

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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