Has Catcher Technology (TPE:2474) Got What It Takes To Become A Multi-Bagger?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Catcher Technology (TPE:2474) and its ROCE trend, we weren't exactly thrilled.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Catcher Technology:

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

0.12 = NT$17b ÷ (NT$244b - NT$99b) (Based on the trailing twelve months to September 2020).

Thus, Catcher Technology has an ROCE of 12%. That's a pretty standard return and it's in line with the industry average of 12%.

See our latest analysis for Catcher Technology

In the above chart we have measured Catcher Technology's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

When we looked at the ROCE trend at Catcher Technology, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 12% from 23% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

While on the subject, we noticed that the ratio of current liabilities to total assets has risen to 41%, which has impacted the ROCE. Without this increase, it's likely that ROCE would be even lower than 12%. And with current liabilities at these levels, suppliers or short-term creditors are effectively funding a large part of the business, which can introduce some risks.

In Conclusion...

In summary, Catcher Technology is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Unsurprisingly, the stock has only gained 2.8% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

One final note, you should learn about the 4 warning signs we've spotted with Catcher Technology (including 1 which is a bit concerning) .

While Catcher Technology isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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