If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating PlumbFast (KOSDAQ:035200), we don't think it's current trends fit the mold of a multi-bagger.
Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the 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)
0.038 = ₩1.5b ÷ (₩43b - ₩3.0b) (Based on the trailing twelve months to September 2024).
Therefore, PlumbFast has an ROCE of 3.8%. In absolute terms, that's a low return and it also under-performs the Building industry average of 5.6%.
View our latest analysis for PlumbFast
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. 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.
What Does the ROCE Trend For PlumbFast Tell Us?
Things have been pretty stable at PlumbFast, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect PlumbFast to be a multi-bagger going forward.
In Conclusion...
In a nutshell, PlumbFast has been trudging along with the same returns from the same amount of capital over the last five years. And with the stock having returned a mere 27% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.
On a final note, we've found 3 warning signs for PlumbFast that we think you should be aware of.
While PlumbFast isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
