To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. Although, when we looked at Triumph Science & TechnologyLtd (SHSE:600552), 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. To calculate this metric for Triumph Science & TechnologyLtd, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.025 = CN¥156m ÷ (CN¥9.8b - CN¥3.7b) (Based on the trailing twelve months to March 2023).
So, Triumph Science & TechnologyLtd has an ROCE of 2.5%. Ultimately, that's a low return and it under-performs the Electronic industry average of 5.9%.
Check out our latest analysis for Triumph Science & TechnologyLtd
In the above chart we have measured Triumph Science & TechnologyLtd's 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 report on analyst forecasts for the company.
What Does the ROCE Trend For Triumph Science & TechnologyLtd Tell Us?
There are better returns on capital out there than what we're seeing at Triumph Science & TechnologyLtd. The company has employed 76% more capital in the last five years, and the returns on that capital have remained stable at 2.5%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.
The Bottom Line On Triumph Science & TechnologyLtd's ROCE
Long story short, while Triumph Science & TechnologyLtd has been reinvesting its capital, the returns that it's generating haven't increased. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 110% gain to shareholders who have held over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.
If you want to continue researching Triumph Science & TechnologyLtd, you might be interested to know about the 3 warning signs that our analysis has discovered.
While Triumph Science & TechnologyLtd 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.