If you want to identify the next multibagger, there are some key trends to keep an eye on. One common approach is to Return value Return on invested capital (ROCE) is increasing, amount of capital employed. If you see this, it usually means the company has a good business model and plenty of opportunities for profitable reinvestment. However, when I looked into it, Avitec Holdings (SGX:1R6), I don’t believe the current trend fits the multi-bagger mold.
About Return on Capital Employed (ROCE)
For those who aren’t sure what ROCE is, it measures the amount of pre-tax profit a company can generate from the capital it puts into 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$4.1 million ÷ (S$60 million – S$5.1 million) (Based on the trailing 12 months ending December 2023).
So, Avi-Tech Holdings’ ROCE is 7.6%. In absolute terms, this is a low return, but it’s around the semiconductor industry average of 6.7%.
Check out our latest analysis for Avi-Tech Holdings
Past performance is a great starting point when researching a stock. Above, you can see a metric that compares Avi-Tech Holdings’ ROCE with past earnings. Want to see how Avi-Tech Holdings has performed on other metrics in the past? free A graph of Avi-Tech Holdings’ historical earnings, revenue and cash flow.
ROCE Trends
Over the past five years, Avi-Tech Holdings’ ROCE and capital employed have both been roughly flat. This suggests that the company is not reinvesting in itself and is likely past the 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 doesn’t compound its earnings, but it does generate steady returns for the same amount of capital input. Investors may also be aware of this trend, as the company’s shares have returned a total of just 29% to shareholders over the past five years. So if you’re looking for a multibagger, you might want to consider other options.
However, Avi-Tech Holdings does involve some risks. 3 Warning Signs in Investment Analysis One of them is potentially serious…
Avi-Tech Holdings may not be earning the highest return on equity at the moment, but we’ve compiled a list of companies currently earning a return on equity above 25%. Check this out free I’ll list them here.
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This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodology, 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 based on 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 involvement in any of the stocks mentioned herein.
