We Like These Underlying Return On Capital Trends At Taitron Components (NASDAQ:TAIT)
To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. So when we looked at Taitron Components (NASDAQ:TAIT) and its trend of ROCE, we really liked what we saw.
Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Taitron Components:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = US$1.9m ÷ (US$16m - US$1.6m) (Based on the trailing twelve months to September 2021).
Therefore, Taitron Components has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 11% it's much better.
Check out our latest analysis for Taitron Components
Historical performance is a great place to start when researching a stock so above you can see the gauge for Taitron Components' ROCE against it's prior returns. If you'd like to look at how Taitron Components has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What Can We Tell From Taitron Components' ROCE Trend?
Taitron Components has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 1,661% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.
Our Take On Taitron Components' ROCE
As discussed above, Taitron Components appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And a remarkable 321% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
On a final note, we've found 2 warning signs for Taitron Components that we think you should be aware of.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.
