We're Watching These Trends At Global SM Tech (KOSDAQ:900070)

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. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Global SM Tech (KOSDAQ:900070) and its ROCE trend, we weren't exactly thrilled.

What is 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 Global SM Tech is:

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

0.018 = ₩2.0b ÷ (₩136b - ₩26b) (Based on the trailing twelve months to September 2020).

Therefore, Global SM Tech has an ROCE of 1.8%. Ultimately, that's a low return and it under-performs the Machinery industry average of 5.4%.

Check out our latest analysis for Global SM Tech

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 want to delve into the historical earnings, revenue and cash flow of Global SM Tech, check out these free graphs here.

So How Is Global SM Tech's ROCE Trending?

There hasn't been much to report for Global SM Tech's returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect Global SM Tech to be a multi-bagger going forward.

The Bottom Line

In a nutshell, Global SM Tech has been trudging along with the same returns from the same amount of capital over the last five years. Since the stock has declined 42% over the last five years, investors may not be too optimistic on this trend improving either. 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 3 warning signs with Global SM Tech and understanding these should be part of your investment process.

While Global SM Tech 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. 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.
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