Returns At Young Fast Optoelectronics (TWSE:3622) Are On The Way Up

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Young Fast Optoelectronics (TWSE:3622) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Young Fast Optoelectronics is:

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

0.064 = NT$484m ÷ (NT$8.1b - NT$530m) (Based on the trailing twelve months to September 2024).

Thus, Young Fast Optoelectronics has an ROCE of 6.4%. In absolute terms, that's a low return but it's around the Electronic industry average of 7.4%.

View our latest analysis for Young Fast Optoelectronics

In the above chart we have measured Young Fast Optoelectronics' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Young Fast Optoelectronics .

The Trend Of ROCE

Young Fast Optoelectronics has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 6.4% which is a sight for sore eyes. In addition to that, Young Fast Optoelectronics is employing 62% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

What We Can Learn From Young Fast Optoelectronics' ROCE

To the delight of most shareholders, Young Fast Optoelectronics has now broken into profitability. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Like most companies, Young Fast Optoelectronics does come with some risks, and we've found 1 warning sign that you should be aware of.

While Young Fast Optoelectronics 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.