Is Youngone Holdings (KRX:009970) Likely To Turn Things Around?

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. However, after investigating Youngone Holdings (KRX:009970), we don't think it's current trends fit the mold of a multi-bagger.

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. The formula for this calculation on Youngone Holdings is:

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

0.095 = ₩309b ÷ (₩3.9t - ₩642b) (Based on the trailing twelve months to September 2020).

Therefore, Youngone Holdings has an ROCE of 9.5%. On its own that's a low return, but compared to the average of 7.4% generated by the Luxury industry, it's much better.

View our latest analysis for Youngone Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Youngone Holdings' ROCE against it's prior returns. If you're interested in investigating Youngone Holdings' past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Youngone Holdings Tell Us?

There are better returns on capital out there than what we're seeing at Youngone Holdings. Over the past five years, ROCE has remained relatively flat at around 9.5% and the business has deployed 55% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line

In summary, Youngone Holdings has simply been reinvesting capital and generating the same low rate of return as before. And in the last five years, the stock has given away 34% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Youngone Holdings has the makings of a multi-bagger.

If you're still interested in Youngone Holdings it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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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