Stock Analysis

Should We Be Excited About The Trends Of Returns At Dong Suh Companies (KRX:026960)?

KOSE:A026960
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To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Dong Suh Companies (KRX:026960), it didn't seem to tick all of these boxes.

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

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. To calculate this metric for Dong Suh Companies, this is the formula:

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

0.027 = ₩40b ÷ (₩1.5t - ₩58b) (Based on the trailing twelve months to September 2020).

Thus, Dong Suh Companies has an ROCE of 2.7%. In absolute terms, that's a low return and it also under-performs the Consumer Retailing industry average of 4.1%.

Check out our latest analysis for Dong Suh Companies

roce
KOSE:A026960 Return on Capital Employed February 8th 2021

Historical performance is a great place to start when researching a stock so above you can see the gauge for Dong Suh Companies' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Dong Suh Companies, check out these free graphs here.

The Trend Of ROCE

When we looked at the ROCE trend at Dong Suh Companies, we didn't gain much confidence. To be more specific, ROCE has fallen from 4.2% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From Dong Suh Companies' ROCE

Bringing it all together, while we're somewhat encouraged by Dong Suh Companies' reinvestment in its own business, we're aware that returns are shrinking. Since the stock has gained an impressive 52% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

Like most companies, Dong Suh Companies does come with some risks, and we've found 1 warning sign that you should be aware of.

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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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