Hyundai MobisLtd (KRX:012330) Has More To Do To Multiply In Value Going Forward

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Hyundai MobisLtd (KRX:012330), we don't think it's current trends fit the mold of a multi-bagger.

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Understanding 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. The formula for this calculation on Hyundai MobisLtd is:

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

0.057 = ₩3.1t ÷ (₩67t - ₩13t) (Based on the trailing twelve months to December 2024).

Thus, Hyundai MobisLtd has an ROCE of 5.7%. In absolute terms, that's a low return and it also under-performs the Auto Components industry average of 7.5%.

Check out our latest analysis for Hyundai MobisLtd

In the above chart we have measured Hyundai MobisLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Hyundai MobisLtd for free.

What Can We Tell From Hyundai MobisLtd's ROCE Trend?

There are better returns on capital out there than what we're seeing at Hyundai MobisLtd. The company has consistently earned 5.7% for the last five years, and the capital employed within the business has risen 43% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

What We Can Learn From Hyundai MobisLtd's ROCE

As we've seen above, Hyundai MobisLtd's returns on capital haven't increased but it is reinvesting in the business. Although the market must be expecting these trends to improve because the stock has gained 50% over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

Hyundai MobisLtd could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for A012330 on our platform quite valuable.

While Hyundai MobisLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.