Career Technology (Mfg.) (TPE:6153) Might Be Having Difficulty Using Its Capital Effectively

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. However, after investigating Career Technology (Mfg.) (TPE:6153), we don't think it's current trends fit the mold of a multi-bagger.

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 Career Technology (Mfg.):

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

0.018 = NT$411m ÷ (NT$32b - NT$9.5b) (Based on the trailing twelve months to December 2020).

Therefore, Career Technology (Mfg.) has an ROCE of 1.8%. Ultimately, that's a low return and it under-performs the Electronic industry average of 10%.

View our latest analysis for Career Technology (Mfg.)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Career Technology (Mfg.)'s ROCE against it's prior returns. If you're interested in investigating Career Technology (Mfg.)'s past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Career Technology (Mfg.)'s ROCE Trend?

On the surface, the trend of ROCE at Career Technology (Mfg.) doesn't inspire confidence. Around five years ago the returns on capital were 4.3%, but since then they've fallen to 1.8%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Key Takeaway

To conclude, we've found that Career Technology (Mfg.) is reinvesting in the business, but returns have been falling. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 128% gain to shareholders who have held over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Career Technology (Mfg.) (of which 1 shouldn't be ignored!) that you should know about.

While Career Technology (Mfg.) may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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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