Is Chant Sincere (TPE:6205) Likely To Turn Things Around?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. In light of that, when we looked at Chant Sincere (TPE:6205) and its ROCE trend, we weren't exactly thrilled.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Chant Sincere:

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

0.086 = NT$161m ÷ (NT$2.3b - NT$420m) (Based on the trailing twelve months to September 2020).

Thus, Chant Sincere has an ROCE of 8.6%. In absolute terms, that's a low return but it's around the Electronic industry average of 10%.

Check out our latest analysis for Chant Sincere

In the above chart we have measured Chant Sincere's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Chant Sincere here for free.

So How Is Chant Sincere's ROCE Trending?

Things have been pretty stable at Chant Sincere, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Chant Sincere in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

The Key Takeaway

We can conclude that in regards to Chant Sincere's returns on capital employed and the trends, there isn't much change to report on. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 125% gain to shareholders who have held over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

If you'd like to know about the risks facing Chant Sincere, we've discovered 2 warning signs that you should be aware of.

While Chant Sincere 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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