Will Samyang Holdings (KRX:000070) Multiply In Value Going Forward?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think Samyang Holdings (KRX:000070) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. The formula for this calculation on Samyang Holdings is:

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

0.036 = ₩113b ÷ (₩3.8t - ₩656b) (Based on the trailing twelve months to September 2020).

Therefore, Samyang Holdings has an ROCE of 3.6%. In absolute terms, that's a low return and it also under-performs the Food industry average of 6.9%.

Check out our latest analysis for Samyang Holdings

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

What Can We Tell From Samyang Holdings' ROCE Trend?

The returns on capital haven't changed much for Samyang Holdings in recent years. The company has consistently earned 3.6% for the last five years, and the capital employed within the business has risen 25% in that time. 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.

Our Take On Samyang Holdings' ROCE

In summary, Samyang Holdings has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has declined 48% over the last five years, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

One final note, you should learn about the 2 warning signs we've spotted with Samyang Holdings (including 1 which is shouldn't be ignored) .

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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