Is Sugentech (KOSDAQ:253840) The Next Multi-Bagger?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Speaking of which, we noticed some great changes in Sugentech's (KOSDAQ:253840) 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. To calculate this metric for Sugentech, this is the formula:

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

0.28 = ₩17b ÷ (₩67b - ₩5.3b) (Based on the trailing twelve months to September 2020).

Therefore, Sugentech has an ROCE of 28%. That's a fantastic return and not only that, it outpaces the average of 13% earned by companies in a similar industry.

See our latest analysis for Sugentech

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Sugentech's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Sugentech's ROCE Trending?

Sugentech has recently broken into profitability so their prior investments seem to be paying off. About one year ago the company was generating losses but things have turned around because it's now earning 28% on its capital. In addition to that, Sugentech is employing 44% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

Our Take On Sugentech's ROCE

Overall, Sugentech gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And a remarkable 163% total return over the last three years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Sugentech can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 3 warning signs facing Sugentech that you might find interesting.

Sugentech is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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