Lotte WellfoodLtd (KRX:280360) Is Doing The Right Things To Multiply Its Share Price

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Lotte WellfoodLtd's (KRX:280360) returns on capital, so let's have a look.

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. Analysts use this formula to calculate it for Lotte WellfoodLtd:

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

0.049 = ₩167b ÷ (₩4.3t - ₩923b) (Based on the trailing twelve months to September 2023).

Thus, Lotte WellfoodLtd has an ROCE of 4.9%. In absolute terms, that's a low return and it also under-performs the Food industry average of 7.9%.

Check out our latest analysis for Lotte WellfoodLtd

In the above chart we have measured Lotte WellfoodLtd'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 Lotte WellfoodLtd for free.

What Can We Tell From Lotte WellfoodLtd's ROCE Trend?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 4.9%. The amount of capital employed has increased too, by 78%. So we're very much inspired by what we're seeing at Lotte WellfoodLtd thanks to its ability to profitably reinvest capital.

The Bottom Line On Lotte WellfoodLtd's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Lotte WellfoodLtd has. And since the stock has fallen 29% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

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

While Lotte WellfoodLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.