LG Energy Solution (KRX:373220) Is Doing The Right Things To Multiply Its Share Price

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, LG Energy Solution (KRX:373220) looks quite promising in regards to its trends of return on capital.

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Understanding Return On Capital Employed (ROCE)

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 LG Energy Solution:

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

0.016 = ₩793b ÷ (₩62t - ₩12t) (Based on the trailing twelve months to March 2025).

Therefore, LG Energy Solution has an ROCE of 1.6%. In absolute terms, that's a low return and it also under-performs the Electrical industry average of 7.7%.

View our latest analysis for LG Energy Solution

Above you can see how the current ROCE for LG Energy Solution compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for LG Energy Solution .

What Does the ROCE Trend For LG Energy Solution Tell Us?

The fact that LG Energy Solution is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses four years ago, but now it's earning 1.6% which is a sight for sore eyes. In addition to that, LG Energy Solution is employing 278% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

One more thing to note, LG Energy Solution has decreased current liabilities to 19% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that LG Energy Solution has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Key Takeaway

Overall, LG Energy Solution gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And since the stock has fallen 19% over the last three years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a separate note, we've found 1 warning sign for LG Energy Solution you'll probably want to know about.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.