Here's What To Make Of SJ Group's (KOSDAQ:306040) Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So while SJ Group (KOSDAQ:306040) has a high ROCE right now, lets see what we can decipher from how returns are changing.

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. The formula for this calculation on SJ Group is:

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

0.20 = ₩18b ÷ (₩105b - ₩17b) (Based on the trailing twelve months to September 2020).

Thus, SJ Group has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Luxury industry average of 8.0%.

Check out our latest analysis for SJ Group

Above you can see how the current ROCE for SJ Group 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 report on analyst forecasts for the company.

What Can We Tell From SJ Group's ROCE Trend?

Things have been pretty stable at SJ Group, with its capital employed and returns on that capital staying somewhat the same for the last . This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So it may not be a multi-bagger in the making, but given the decent 20% return on capital, it'd be difficult to find fault with the business's current operations.

What We Can Learn From SJ Group's ROCE

While SJ Group has impressive profitability from its capital, it isn't increasing that amount of capital. Although the market must be expecting these trends to improve because the stock has gained 90% over the last year. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

On a final note, we've found 1 warning sign for SJ Group that we think you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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