Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at PlumbFast (KOSDAQ:035200) and its ROCE trend, we weren't exactly thrilled.
Understanding Return On Capital Employed (ROCE)
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for PlumbFast:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.045 = ₩1.7b ÷ (₩42b - ₩3.2b) (Based on the trailing twelve months to March 2024).
Thus, PlumbFast has an ROCE of 4.5%. Ultimately, that's a low return and it under-performs the Building industry average of 6.6%.
See our latest analysis for PlumbFast
Historical performance is a great place to start when researching a stock so above you can see the gauge for PlumbFast's ROCE against it's prior returns. If you'd like to look at how PlumbFast has performed in the past in other metrics, you can view this free graph of PlumbFast's past earnings, revenue and cash flow.
So How Is PlumbFast's ROCE Trending?
Over the past five years, PlumbFast's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at PlumbFast in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.
The Bottom Line
We can conclude that in regards to PlumbFast's returns on capital employed and the trends, there isn't much change to report on. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.
One more thing to note, we've identified 2 warning signs with PlumbFast and understanding these should be part of your investment process.
While PlumbFast 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.
About KOSDAQ:A035200
Excellent balance sheet and fair value.
