Taitron Components (NASDAQ:TAIT) Is Doing The Right Things To Multiply Its Share Price
Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Taitron Components (NASDAQ:TAIT) and its trend of ROCE, we really liked what we saw.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Taitron Components, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.16 = US$2.5m ÷ (US$17m - US$1.1m) (Based on the trailing twelve months to September 2022).
Therefore, Taitron Components has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 12% 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 want to delve into the historical earnings, revenue and cash flow of Taitron Components, check out these free graphs here.
So How Is Taitron Components' ROCE Trending?
We're delighted to see that Taitron Components is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 16% which is a sight for sore eyes. Not only that, but the company is utilizing 31% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.
The Bottom Line
To the delight of most shareholders, Taitron Components has now broken into profitability. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Taitron Components can keep these trends up, it could have a bright future ahead.
If you'd like to know more about Taitron Components, we've spotted 4 warning signs, and 1 of them makes us a bit uncomfortable.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.
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