Is Evergreen International Storage & Transport (TPE:2607) Likely To Turn Things Around?

What are the early trends we should look for to identify a stock that could 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Evergreen International Storage & Transport (TPE:2607), it didn't seem to tick all of these boxes.

What is 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. Analysts use this formula to calculate it for Evergreen International Storage & Transport:

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

0.026 = NT$783m ÷ (NT$34b - NT$3.5b) (Based on the trailing twelve months to September 2020).

Thus, Evergreen International Storage & Transport has an ROCE of 2.6%. Ultimately, that's a low return and it under-performs the Infrastructure industry average of 5.1%.

View our latest analysis for Evergreen International Storage & Transport

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'd like to look at how Evergreen International Storage & Transport has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Evergreen International Storage & Transport's ROCE Trending?

Things have been pretty stable at Evergreen International Storage & Transport, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at Evergreen International Storage & Transport in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

The Bottom Line

In a nutshell, Evergreen International Storage & Transport has been trudging along with the same returns from the same amount of capital over the last five years. Although the market must be expecting these trends to improve because the stock has gained 42% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Like most companies, Evergreen International Storage & Transport does come with some risks, and we've found 1 warning sign that you should be aware of.

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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