Stock Analysis

Should We Be Excited About The Trends Of Returns At Delta Electronics (TPE:2308)?

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TWSE:2308
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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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. That's why when we briefly looked at Delta Electronics' (TPE:2308) ROCE trend, we were pretty happy with what we saw.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Delta Electronics is:

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

0.11 = NT$27b ÷ (NT$328b - NT$87b) (Based on the trailing twelve months to September 2020).

Thus, Delta Electronics has an ROCE of 11%. By itself that's a normal return on capital and it's in line with the industry's average returns of 11%.

Check out our latest analysis for Delta Electronics

roce
TSEC:2308 Return on Capital Employed January 15th 2021

Above you can see how the current ROCE for Delta Electronics compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Delta Electronics here for free.

So How Is Delta Electronics' ROCE Trending?

While the returns on capital are good, they haven't moved much. The company has consistently earned 11% for the last five years, and the capital employed within the business has risen 62% in that time. 11% is a pretty standard return, and it provides some comfort knowing that Delta Electronics 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.

What We Can Learn From Delta Electronics' ROCE

To sum it up, Delta Electronics has simply been reinvesting capital steadily, at those decent rates of return. And long term investors would be thrilled with the 185% 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.

On a final note, we've found 1 warning sign for Delta Electronics that we think you should be aware of.

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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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