Lotes (TPE:3533) Is Investing Its Capital With Increasing Efficiency

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Lotes' (TPE:3533) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Lotes is:

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

0.25 = NT$3.7b ÷ (NT$19b - NT$4.6b) (Based on the trailing twelve months to December 2020).

Therefore, Lotes has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Electronic industry average of 10%.

See our latest analysis for Lotes

Above you can see how the current ROCE for Lotes compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Lotes.

What Can We Tell From Lotes' ROCE Trend?

Investors would be pleased with what's happening at Lotes. The data shows that returns on capital have increased substantially over the last five years to 25%. The amount of capital employed has increased too, by 80%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Lotes' ROCE

All in all, it's terrific to see that Lotes is reaping the rewards from prior investments and is growing its capital base. And a remarkable 617% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Lotes can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 1 warning sign for Lotes you'll probably want to know about.

Lotes is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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