Stock Analysis

Return Trends At Delta Electronics (TPE:2308) Aren't Appealing

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TWSE:2308
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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. With that in mind, the ROCE of Delta Electronics (TPE:2308) looks decent, right now, so lets see what the trend of returns can tell us.

What is Return On Capital Employed (ROCE)?

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. To calculate this metric for Delta Electronics, this is the formula:

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

0.13 = NT$32b ÷ (NT$336b - NT$94b) (Based on the trailing twelve months to December 2020).

So, Delta Electronics has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 10% it's much better.

Check out our latest analysis for Delta Electronics

roce
TSEC:2308 Return on Capital Employed April 23rd 2021

In the above chart we have measured Delta Electronics' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Delta Electronics.

How Are Returns Trending?

While the current returns on capital are decent, they haven't changed much. The company has employed 62% more capital in the last five years, and the returns on that capital have remained stable at 13%. 13% is a pretty standard return, and it provides some comfort knowing that Delta Electronics has consistently earned this amount. 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.

In Conclusion...

The main thing to remember is that Delta Electronics has proven its ability to continually reinvest at respectable rates of return. And long term investors would be thrilled with the 134% return they've received over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Delta Electronics could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

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About TWSE:2308

Delta Electronics

Delta Electronics, Inc., together with its subsidiaries, provides power and thermal management solutions in Mainland China, the United States, Taiwan, Thailand, and internationally.

Flawless balance sheet with reasonable growth potential.

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