Does Hiwin Mikrosystem (TPE:4576) Have The Makings Of A Multi-Bagger?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Hiwin Mikrosystem's (TPE:4576) returns on capital, so let's have a look.

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 Hiwin Mikrosystem:

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

0.023 = NT$103m ÷ (NT$5.5b - NT$1.1b) (Based on the trailing twelve months to September 2020).

So, Hiwin Mikrosystem has an ROCE of 2.3%. Ultimately, that's a low return and it under-performs the Electronic industry average of 11%.

See our latest analysis for Hiwin Mikrosystem

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Hiwin Mikrosystem's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The numbers show that in the last four years, the returns generated on capital employed have grown considerably to 2.3%. 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 56%. 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.

Our Take On Hiwin Mikrosystem's ROCE

To sum it up, Hiwin Mikrosystem 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 solid 34% to shareholders over the last year, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a final note, we found 2 warning signs for Hiwin Mikrosystem (1 is concerning) you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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