Here's What To Make Of Chant Sincere's (TWSE:6205) Decelerating Rates Of Return

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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 Chant Sincere (TWSE:6205), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for Chant Sincere, this is the formula:

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

0.051 = NT$175m ÷ (NT$3.9b - NT$464m) (Based on the trailing twelve months to September 2024).

So, Chant Sincere has an ROCE of 5.1%. Ultimately, that's a low return and it under-performs the Electronic industry average of 7.4%.

Check out our latest analysis for Chant Sincere

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

What The Trend Of ROCE Can Tell Us

The returns on capital haven't changed much for Chant Sincere in recent years. Over the past five years, ROCE has remained relatively flat at around 5.1% and the business has deployed 88% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Key Takeaway

Long story short, while Chant Sincere has been reinvesting its capital, the returns that it's generating haven't increased. Yet to long term shareholders the stock has gifted them an incredible 273% return in the last five years, so the market appears to be rosy about its future. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Chant Sincere does have some risks though, and we've spotted 1 warning sign for Chant Sincere that you might be interested in.

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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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.