Has Korea Electric Terminal (KRX:025540) Got What It Takes To Become A Multi-Bagger?

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 Korea Electric Terminal (KRX:025540) and its ROCE trend, we weren't exactly thrilled.

What is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Korea Electric Terminal is:

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

0.072 = ₩57b ÷ (₩935b - ₩133b) (Based on the trailing twelve months to September 2020).

Thus, Korea Electric Terminal has an ROCE of 7.2%. On its own that's a low return on capital but it's in line with the industry's average returns of 6.6%.

Check out our latest analysis for Korea Electric Terminal

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're interested in investigating Korea Electric Terminal's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

When we looked at the ROCE trend at Korea Electric Terminal, we didn't gain much confidence. Around five years ago the returns on capital were 13%, but since then they've fallen to 7.2%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

In Conclusion...

To conclude, we've found that Korea Electric Terminal is reinvesting in the business, but returns have been falling. And investors appear hesitant that the trends will pick up because the stock has fallen 26% in the last five years. 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.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Korea Electric Terminal (of which 1 is concerning!) that you should know about.

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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