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

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think Korea Electric Terminal (KRX:025540) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Korea Electric Terminal:

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).

Therefore, 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 6.8%.

See our latest analysis for Korea Electric Terminal

Historical performance is a great place to start when researching a stock so above you can see the gauge for Korea Electric Terminal's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Korea Electric Terminal, check out these free graphs here.

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's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Our Take On Korea Electric Terminal's ROCE

Bringing it all together, while we're somewhat encouraged by Korea Electric Terminal's reinvestment in its own business, we're aware that returns are shrinking. Since the stock has declined 17% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Korea Electric Terminal has the makings of a multi-bagger.

If you'd like to know more about Korea Electric Terminal, we've spotted 2 warning signs, and 1 of them is significant.

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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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