Di Dong Il (KRX:001530) Might Have The Makings Of A Multi-Bagger

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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 when we looked at Di Dong Il (KRX:001530) and its trend of ROCE, we really liked what we saw.

What is 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 Di Dong Il:

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

0.041 = ₩26b ÷ (₩883b - ₩239b) (Based on the trailing twelve months to December 2020).

Therefore, Di Dong Il has an ROCE of 4.1%. In absolute terms, that's a low return and it also under-performs the Luxury industry average of 7.4%.

See our latest analysis for Di Dong Il

Above you can see how the current ROCE for Di Dong Il 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 The Trend Of ROCE Can Tell Us

While there are companies with higher returns on capital out there, we still find the trend at Di Dong Il promising. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 168% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

Our Take On Di Dong Il's ROCE

To sum it up, Di Dong Il is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 259% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a final note, we found 4 warning signs for Di Dong Il (1 makes us a bit uncomfortable) you should be aware of.

While Di Dong Il isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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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