We're Watching These Trends At BIT Computer (KOSDAQ:032850)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 BIT Computer (KOSDAQ:032850), we don't think it's current trends fit the mold of a multi-bagger.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for BIT Computer, this is the formula:

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

0.092 = ₩5.4b ÷ (₩68b - ₩9.3b) (Based on the trailing twelve months to September 2020).

Therefore, BIT Computer has an ROCE of 9.2%. Even though it's in line with the industry average of 9.3%, it's still a low return by itself.

Check out our latest analysis for BIT Computer

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

The Trend Of ROCE

There are better returns on capital out there than what we're seeing at BIT Computer. Over the past five years, ROCE has remained relatively flat at around 9.2% and the business has deployed 44% 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.

What We Can Learn From BIT Computer's ROCE

Long story short, while BIT Computer has been reinvesting its capital, the returns that it's generating haven't increased. And investors may be recognizing these trends since the stock has only returned a total of 20% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

Like most companies, BIT Computer does come with some risks, and we've found 2 warning signs that 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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