Has SPC Samlip (KRX:005610) Got What It Takes To Become A Multi-Bagger?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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 SPC Samlip (KRX:005610), we don't think it's current trends fit the mold of a multi-bagger.

What is 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. Analysts use this formula to calculate it for SPC Samlip:

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

0.054 = ₩35b ÷ (₩1.2t - ₩562b) (Based on the trailing twelve months to September 2020).

Thus, SPC Samlip has an ROCE of 5.4%. Ultimately, that's a low return and it under-performs the Food industry average of 6.9%.

Check out our latest analysis for SPC Samlip

In the above chart we have measured SPC Samlip's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering SPC Samlip here for free.

So How Is SPC Samlip's ROCE Trending?

On the surface, the trend of ROCE at SPC Samlip doesn't inspire confidence. Over the last five years, returns on capital have decreased to 5.4% from 17% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a side note, SPC Samlip's current liabilities are still rather high at 46% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Key Takeaway

Bringing it all together, while we're somewhat encouraged by SPC Samlip's reinvestment in its own business, we're aware that returns are shrinking. Moreover, since the stock has crumbled 71% over the last five years, it appears investors are expecting the worst. Therefore based on the analysis done in this article, we don't think SPC Samlip has the makings of a multi-bagger.

On a final note, we found 2 warning signs for SPC Samlip (1 makes us a bit uncomfortable) you should be aware of.

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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