Returns At PlumbFast (KOSDAQ:035200) Appear To Be Weighed Down

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. 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. Although, when we looked at PlumbFast (KOSDAQ:035200), it didn't seem to tick all of these boxes.

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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. The formula for this calculation on PlumbFast is:

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

0.041 = ₩1.6b ÷ (₩43b - ₩3.8b) (Based on the trailing twelve months to December 2024).

So, PlumbFast has an ROCE of 4.1%. In absolute terms, that's a low return and it also under-performs the Building industry average of 6.8%.

View 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're interested in investigating PlumbFast's past further, check out this free graph covering PlumbFast's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Over the past five years, PlumbFast's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if PlumbFast doesn't end up being a multi-bagger in a few years time.

Our Take On PlumbFast's ROCE

In summary, PlumbFast isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 119% gain to shareholders who have held over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

If you want to know some of the risks facing PlumbFast we've found 2 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

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.