The Returns At Sinher Technology (TPE:4999) Aren't Growing

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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 Sinher Technology (TPE:4999) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding 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. Analysts use this formula to calculate it for Sinher Technology:

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

0.18 = NT$655m ÷ (NT$4.4b - NT$811m) (Based on the trailing twelve months to December 2020).

Thus, Sinher Technology has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 11% it's much better.

View our latest analysis for Sinher Technology

Historical performance is a great place to start when researching a stock so above you can see the gauge for Sinher Technology's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Sinher Technology, check out these free graphs here.

What Does the ROCE Trend For Sinher Technology Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 22% more capital in the last five years, and the returns on that capital have remained stable at 18%. Since 18% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. 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.

The Bottom Line On Sinher Technology's ROCE

To sum it up, Sinher Technology has simply been reinvesting capital steadily, at those decent rates of return. Therefore it's no surprise that shareholders have earned a respectable 86% return if they held 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.

Sinher Technology does have some risks, we noticed 3 warning signs (and 2 which are a bit unpleasant) we think you should know about.

While Sinher 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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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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