The Trends At INFINITT Healthcare (KOSDAQ:071200) That You Should Know About

There are a few key trends to look for if we want to identify the next multi-bagger. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think INFINITT Healthcare (KOSDAQ:071200) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. To calculate this metric for INFINITT Healthcare, this is the formula:

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

0.053 = ₩4.8b ÷ (₩111b - ₩19b) (Based on the trailing twelve months to September 2020).

Thus, INFINITT Healthcare has an ROCE of 5.3%. In absolute terms, that's a low return and it also under-performs the Healthcare Services industry average of 9.4%.

View our latest analysis for INFINITT Healthcare

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

How Are Returns Trending?

In terms of INFINITT Healthcare's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 5.3% from 8.5% 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 may take some time before the company starts to see any change in earnings from these investments.

Our Take On INFINITT Healthcare's ROCE

Bringing it all together, while we're somewhat encouraged by INFINITT Healthcare's reinvestment in its own business, we're aware that returns are shrinking. And investors appear hesitant that the trends will pick up because the stock has fallen 13% in the last five years. Therefore based on the analysis done in this article, we don't think INFINITT Healthcare has the makings of a multi-bagger.

INFINITT Healthcare does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those can't be ignored...

While INFINITT Healthcare 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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