Chunghwa Telecom (TWSE:2412) Has Some Way To Go To Become A Multi-Bagger

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Chunghwa Telecom (TWSE:2412), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Chunghwa Telecom is:

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

0.10 = NT$46b ÷ (NT$510b - NT$67b) (Based on the trailing twelve months to September 2024).

Thus, Chunghwa Telecom has an ROCE of 10%. By itself that's a normal return on capital and it's in line with the industry's average returns of 9.9%.

See our latest analysis for Chunghwa Telecom

Above you can see how the current ROCE for Chunghwa Telecom compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Chunghwa Telecom .

How Are Returns Trending?

There hasn't been much to report for Chunghwa Telecom's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Chunghwa Telecom doesn't end up being a multi-bagger in a few years time. That being the case, it makes sense that Chunghwa Telecom has been paying out 99% of its earnings to its shareholders. Most shareholders probably know this and own the stock for its dividend.

The Key Takeaway

We can conclude that in regards to Chunghwa Telecom's returns on capital employed and the trends, there isn't much change to report on. Unsurprisingly, the stock has only gained 37% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

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

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.