Is Hanssem (KRX:009240) Likely To Turn Things Around?

What trends should we look for it we want to identify stocks that can 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. In light of that, when we looked at Hanssem (KRX:009240) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What is it?

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. Analysts use this formula to calculate it for Hanssem:

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

0.11 = ₩85b ÷ (₩1.3t - ₩458b) (Based on the trailing twelve months to September 2020).

Thus, Hanssem has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 9.1% generated by the Consumer Durables industry.

See our latest analysis for Hanssem

In the above chart we have measured Hanssem's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Hanssem's ROCE Trending?

In terms of Hanssem's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 32%, but since then they've fallen to 11%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line

In summary, despite lower returns in the short term, we're encouraged to see that Hanssem is reinvesting for growth and has higher sales as a result. However, despite the promising trends, the stock has fallen 55% over the last five years, so there might be an opportunity here for astute investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

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

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