Will the Promising Trends At Taitron Components (NASDAQ:TAIT) Continue?

Simply Wall St
·3 min read

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Taitron Components (NASDAQ:TAIT) looks quite promising in regards to its trends of return on capital.

What is 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)

0.039 = US$499k ÷ (US$14m - US$934k) (Based on the trailing twelve months to June 2020).

Therefore, Taitron Components has an ROCE of 3.9%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 10%.

See our latest analysis for Taitron Components

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While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. 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?

Like most people, we're pleased that Taitron Components is now generating some pretax earnings. The company was generating losses five years ago, but now it's turned around, earning 3.9% which is no doubt a relief for some early shareholders. In regards to capital employed, Taitron Components is using 22% less capital than it was five years ago, which on the surface, can indicate that the business has become more efficient at generating these returns. Taitron Components could be selling under-performing assets since the ROCE is improving.

The Bottom Line

From what we've seen above, Taitron Components has managed to increase it's returns on capital all the while reducing it's capital base. Since the stock has returned a staggering 212% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to continue researching Taitron Components, you might be interested to know about the 4 warning signs that our analysis has discovered.

While Taitron Components isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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.

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