Samyung Trading (KRX:002810) Might Have The Makings Of A Multi-Bagger

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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 Samyung Trading (KRX:002810) so let's look a bit deeper.

What is 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. To calculate this metric for Samyung Trading, this is the formula:

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

0.05 = ₩22b ÷ (₩533b - ₩82b) (Based on the trailing twelve months to December 2020).

Thus, Samyung Trading has an ROCE of 5.0%. Even though it's in line with the industry average of 5.3%, it's still a low return by itself.

View our latest analysis for Samyung Trading

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

What The Trend Of ROCE Can Tell Us

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 5.0%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 61%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line

To sum it up, Samyung Trading has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you'd like to know about the risks facing Samyung Trading, we've discovered 1 warning sign that you should be aware of.

While Samyung Trading 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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