If you want to identify your next multibagger, there are some important trends to look out for. One common approach is to look for companies whose return on capital employed (ROCE) is increasing as their capital employed increases. If you see this, it usually means the company has a good business model and plenty of opportunities for profitable reinvestment. However, after researching Avi-Tech Holdings (SGX:1R6), we don't think the current trend fits into the multibagger mold.
Understanding Return on Invested Capital (ROCE)
For those unfamiliar with what ROCE is, it measures the amount of pre-tax profit a company is able to generate from the capital employed in its business: The formula to calculate this metric for Avi-Tech Holdings is:
Return on Capital Employed = Earnings before interest and tax (EBIT) ÷ (Total assets – Current liabilities)
0.076 = S$4.1m ÷ (S$60m – S$5.1m) (Based on the trailing twelve months to December 2023).
That means Avi-Tech Holdings has an ROCE of 7.6% – a low return in absolute terms, but on par with the Semiconductor industry average of 6.7%.
Check out our latest analysis for Avi-Tech Holdings
Rose
Past performance is always a great starting point when researching a stock, so above you can see the ROCE metric for Avi-Tech Holdings' past returns: If you'd like to see how Avi-Tech Holdings has performed historically on other metrics, you can view this free graph of Avi-Tech Holdings' past earnings, revenue and cash flow.
ROCE Trends
Over the past five years, Avi-Tech Holdings' ROCE and capital employed have both remained relatively flat. This suggests that the company is not reinvesting in itself and is likely past its growth stage. With that in mind, we don't expect Avi-Tech Holdings to become a multi-bagger in the future unless investment picks up again in the future.
conclusion
In summary, Avi-Tech Holdings has not grown earnings, but it has generated stable profits with the same amount of capital employed. Investors may also be aware of this trend, as the stock has only returned a total of 29% to shareholders over the past five years. Therefore, if you are looking for a multi-bagger, we recommend looking at other options.
However, Avi-Tech Holdings does come with some risks, and we've spotted 3 warning signs in our investment analysis, and 1 of them is potentially serious…
Avi-Tech Holdings may not be earning the highest return on equity currently, but we have compiled a list of companies currently earning a return on equity above 25%, and you can see this free list here.
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This article by Simply Wall St is of general content. We use only unbiased methodologies to provide commentary based on historical data and analyst forecasts, and our articles are not intended as financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term analysis driven by fundamental data. Please 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 of the stocks mentioned.
