Will HanmiGlobal (KRX:053690) Multiply In Value Going Forward?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think HanmiGlobal (KRX:053690) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 HanmiGlobal is:

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

0.068 = ₩11b ÷ (₩218b - ₩62b) (Based on the trailing twelve months to June 2020).

Therefore, HanmiGlobal has an ROCE of 6.8%. Ultimately, that's a low return and it under-performs the Construction industry average of 9.5%.

See our latest analysis for HanmiGlobal

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

What Can We Tell From HanmiGlobal's ROCE Trend?

When we looked at the ROCE trend at HanmiGlobal, we didn't gain much confidence. To be more specific, ROCE has fallen from 13% over the last five years. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

In Conclusion...

From the above analysis, we find it rather worrisome that returns on capital and sales for HanmiGlobal have fallen, meanwhile the business is employing more capital than it was five years ago. In spite of that, the stock has delivered a 0.8% return to shareholders who held over the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

One more thing to note, we've identified 2 warning signs with HanmiGlobal and understanding these should be part of your investment process.

While HanmiGlobal 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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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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