We're Watching These Trends At SEWONCELLONTECH (KRX:091090)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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 investigating SEWONCELLONTECH (KRX:091090), we don't think it's current trends fit the mold of a multi-bagger.

Understanding 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. Analysts use this formula to calculate it for SEWONCELLONTECH:

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

0.014 = ₩2.9b ÷ (₩346b - ₩135b) (Based on the trailing twelve months to September 2020).

So, SEWONCELLONTECH has an ROCE of 1.4%. Ultimately, that's a low return and it under-performs the Machinery industry average of 5.4%.

View our latest analysis for SEWONCELLONTECH

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'd like to look at how SEWONCELLONTECH has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is SEWONCELLONTECH's ROCE Trending?

There are better returns on capital out there than what we're seeing at SEWONCELLONTECH. Over the past five years, ROCE has remained relatively flat at around 1.4% and the business has deployed 68% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

On a side note, SEWONCELLONTECH has done well to reduce current liabilities to 39% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Key Takeaway

As we've seen above, SEWONCELLONTECH's returns on capital haven't increased but it is reinvesting in the business. Since the stock has declined 18% 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.

If you want to know some of the risks facing SEWONCELLONTECH we've found 2 warning signs (1 is potentially serious!) that you should be aware of before investing here.

While SEWONCELLONTECH 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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