Should We Be Excited About The Trends Of Returns At SJ Group (KOSDAQ:306040)?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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 while SJ Group (KOSDAQ:306040) has a high ROCE right now, lets see what we can decipher from how returns are changing.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for SJ Group, this is the formula:

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

0.23 = ₩19b ÷ (₩100b - ₩16b) (Based on the trailing twelve months to June 2020).

Thus, SJ Group has an ROCE of 23%. That's a fantastic return and not only that, it outpaces the average of 7.2% earned by companies in a similar industry.

See our latest analysis for SJ Group

In the above chart we have measured SJ Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering SJ Group here for free.

What Does the ROCE Trend For SJ Group Tell Us?

There hasn't been much to report for SJ Group's returns and its level of capital employed because both metrics have been steady for the past . It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So it may not be a multi-bagger in the making, but given the decent 23% return on capital, it'd be difficult to find fault with the business's current operations.

The Key Takeaway

While SJ Group has impressive profitability from its capital, it isn't increasing that amount of capital. Unsurprisingly, the stock has only gained 4.1% over the last year, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

SJ Group does have some risks though, and we've spotted 1 warning sign for SJ Group that you might be interested in.

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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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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