Return Trends At Hyundai MobisLtd (KRX:012330) Aren't Appealing

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. However, after briefly looking over the numbers, we don't think Hyundai MobisLtd (KRX:012330) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is 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. To calculate this metric for Hyundai MobisLtd, this is the formula:

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

0.051 = ₩2.6t ÷ (₩62t - ₩11t) (Based on the trailing twelve months to September 2024).

Therefore, Hyundai MobisLtd has an ROCE of 5.1%. In absolute terms, that's a low return and it also under-performs the Auto Components industry average of 8.2%.

See 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 to see what analysts are forecasting going forward, you should check out our free analyst report for Hyundai MobisLtd .

What Does the ROCE Trend For Hyundai MobisLtd Tell Us?

In terms of Hyundai MobisLtd's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 5.1% for the last five years, and the capital employed within the business has risen 38% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

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. Unsurprisingly, the stock has only gained 2.6% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

While Hyundai MobisLtd doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for A012330 on our platform.

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.