Has Hyundai Industrial (KOSDAQ:170030) Got What It Takes To Become A Multi-Bagger?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. Although, when we looked at Hyundai Industrial (KOSDAQ:170030), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Hyundai Industrial:

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

0.087 = ₩9.7b ÷ (₩154b - ₩43b) (Based on the trailing twelve months to September 2020).

So, Hyundai Industrial has an ROCE of 8.7%. On its own that's a low return, but compared to the average of 4.1% generated by the Auto Components industry, it's much better.

Check out our latest analysis for Hyundai Industrial

Historical performance is a great place to start when researching a stock so above you can see the gauge for Hyundai Industrial's ROCE against it's prior returns. If you'd like to look at how Hyundai Industrial has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Hyundai Industrial's ROCE Trending?

On the surface, the trend of ROCE at Hyundai Industrial doesn't inspire confidence. Over the last five years, returns on capital have decreased to 8.7% from 18% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

The Key Takeaway

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Hyundai Industrial. And long term investors must be optimistic going forward because the stock has returned a huge 125% to shareholders in the last five years. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

If you want to continue researching Hyundai Industrial, you might be interested to know about the 1 warning sign that our analysis has discovered.

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. 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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