Kyungin Electronics (KRX:009140) Is Doing The Right Things To Multiply Its Share Price

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Kyungin Electronics (KRX:009140) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Kyungin Electronics, this is the formula:

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

0.003 = ₩216m ÷ (₩75b - ₩3.0b) (Based on the trailing twelve months to December 2023).

Therefore, Kyungin Electronics has an ROCE of 0.3%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 6.3%.

See our latest analysis for Kyungin Electronics

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Kyungin Electronics' past further, check out this free graph covering Kyungin Electronics' past earnings, revenue and cash flow.

The Trend Of ROCE

We're delighted to see that Kyungin Electronics is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 0.3% on its capital. In addition to that, Kyungin Electronics is employing 31% 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.

In Conclusion...

In summary, it's great to see that Kyungin Electronics has managed to break into profitability and is continuing to reinvest in its business. Astute investors may have an opportunity here because the stock has declined 37% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

Kyungin Electronics does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is a bit concerning...

While Kyungin Electronics 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. 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.