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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So, when we ran our eye over S-1's (KRX:012750) trend of ROCE, we liked what we saw.
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. To calculate this metric for S-1, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = ₩204b ÷ (₩1.9t - ₩413b) (Based on the trailing twelve months to December 2020).
Thus, S-1 has an ROCE of 14%. By itself that's a normal return on capital and it's in line with the industry's average returns of 14%.
See our latest analysis for S-1
Above you can see how the current ROCE for S-1 compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for S-1.
What Does the ROCE Trend For S-1 Tell Us?
The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 14% and the business has deployed 40% more capital into its operations. Since 14% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
In Conclusion...
In the end, S-1 has proven its ability to adequately reinvest capital at good rates of return. In light of this, the stock has only gained 1.4% over the last five years for shareholders who have owned the stock in this period. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.
If you're still interested in S-1 it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.
While S-1 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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About KOSE:A012750
S-1
Provides safety and security services in South Korea and internationally.
Flawless balance sheet, undervalued and pays a dividend.
