Will the Promising Trends At Sangsin Energy Display PrecisionLtd (KOSDAQ:091580) Continue?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. With that in mind, we've noticed some promising trends at Sangsin Energy Display PrecisionLtd (KOSDAQ:091580) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

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. To calculate this metric for Sangsin Energy Display PrecisionLtd, this is the formula:

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

0.17 = ₩14b ÷ (₩158b - ₩79b) (Based on the trailing twelve months to September 2020).

Therefore, Sangsin Energy Display PrecisionLtd has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 6.5% generated by the Electrical industry.

View our latest analysis for Sangsin Energy Display PrecisionLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Sangsin Energy Display PrecisionLtd's ROCE against it's prior returns. If you'd like to look at how Sangsin Energy Display PrecisionLtd has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

We're delighted to see that Sangsin Energy Display PrecisionLtd is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 17% on its capital. In addition to that, Sangsin Energy Display PrecisionLtd is employing 66% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

On a separate but related note, it's important to know that Sangsin Energy Display PrecisionLtd has a current liabilities to total assets ratio of 50%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

In Conclusion...

In summary, it's great to see that Sangsin Energy Display PrecisionLtd has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a staggering 215% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a final note, we've found 2 warning signs for Sangsin Energy Display PrecisionLtd that we think you should be aware of.

While Sangsin Energy Display PrecisionLtd 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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