Advertisement
U.S. markets close in 3 hours 26 minutes
  • S&P 500

    5,250.96
    +2.47 (+0.05%)
     
  • Dow 30

    39,760.94
    +0.86 (+0.00%)
     
  • Nasdaq

    16,386.29
    -13.23 (-0.08%)
     
  • Russell 2000

    2,133.62
    +19.27 (+0.91%)
     
  • Crude Oil

    82.64
    +1.29 (+1.59%)
     
  • Gold

    2,238.30
    +25.60 (+1.16%)
     
  • Silver

    24.90
    +0.15 (+0.60%)
     
  • EUR/USD

    1.0805
    -0.0025 (-0.23%)
     
  • 10-Yr Bond

    4.1870
    -0.0090 (-0.21%)
     
  • GBP/USD

    1.2640
    +0.0002 (+0.02%)
     
  • USD/JPY

    151.3210
    +0.0750 (+0.05%)
     
  • Bitcoin USD

    70,918.95
    +1,746.49 (+2.52%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • FTSE 100

    7,961.26
    +29.28 (+0.37%)
     
  • Nikkei 225

    40,168.07
    -594.66 (-1.46%)
     

Will Rectifier Technologies (ASX:RFT) Become A Multi-Bagger?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. And in light of that, the trends we're seeing at Rectifier Technologies' (ASX:RFT) look very promising so lets take a look.

Return On Capital Employed (ROCE): What is it?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Rectifier Technologies, this is the formula:

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

0.24 = AU$3.3m ÷ (AU$18m - AU$4.5m) (Based on the trailing twelve months to June 2020).

Therefore, Rectifier Technologies has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Electrical industry average of 8.5%.

View our latest analysis for Rectifier Technologies

roce
roce

Historical performance is a great place to start when researching a stock so above you can see the gauge for Rectifier Technologies' ROCE against it's prior returns. If you'd like to look at how Rectifier Technologies has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Rectifier Technologies' ROCE Trending?

Investors would be pleased with what's happening at Rectifier Technologies. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 24%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 669%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 25%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Rectifier Technologies has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line

To sum it up, Rectifier Technologies has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 485% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Rectifier Technologies can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Rectifier Technologies, we've discovered 2 warning signs that you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

Advertisement