Acer Gadget (TWSE:2432) Is Doing The Right Things To Multiply Its Share Price

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Acer Gadget (TWSE:2432) looks quite promising in regards to its trends of return on capital.

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 Acer Gadget is:

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

0.099 = NT$121m ÷ (NT$1.7b - NT$517m) (Based on the trailing twelve months to September 2024).

Therefore, Acer Gadget has an ROCE of 9.9%. In absolute terms, that's a low return but it's around the Tech industry average of 12%.

See our latest analysis for Acer Gadget

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 Acer Gadget's past further, check out this free graph covering Acer Gadget's past earnings, revenue and cash flow.

What Can We Tell From Acer Gadget's ROCE Trend?

The fact that Acer Gadget is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses four years ago, but now it's earning 9.9% which is a sight for sore eyes. In addition to that, Acer Gadget is employing 288% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In Conclusion...

To the delight of most shareholders, Acer Gadget has now broken into profitability. Given the stock has declined 12% in the last year, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing, we've spotted 1 warning sign facing Acer Gadget that you might find interesting.

While Acer Gadget 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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.