Returns On Capital At PungKang (KOSDAQ:093380) Have Stalled

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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at PungKang (KOSDAQ:093380) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for PungKang, this is the formula:

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

0.025 = ₩1.9b ÷ (₩95b - ₩17b) (Based on the trailing twelve months to May 2024).

So, PungKang has an ROCE of 2.5%. In absolute terms, that's a low return and it also under-performs the Auto Components industry average of 9.1%.

See our latest analysis for PungKang

Historical performance is a great place to start when researching a stock so above you can see the gauge for PungKang's ROCE against it's prior returns. If you're interested in investigating PungKang's past further, check out this free graph covering PungKang's past earnings, revenue and cash flow.

What Does the ROCE Trend For PungKang Tell Us?

Things have been pretty stable at PungKang, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect PungKang to be a multi-bagger going forward.

The Bottom Line

In summary, PungKang isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has declined 17% over the last five years, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

Like most companies, PungKang does come with some risks, and we've found 3 warning signs that 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.