We Like Sugentech's (KOSDAQ:253840) Returns And Here's How They're Trending

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Sugentech (KOSDAQ:253840) looks great, so lets see what the trend can tell us.

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. The formula for this calculation on Sugentech is:

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

0.34 = ₩23b ÷ (₩72b - ₩6.3b) (Based on the trailing twelve months to December 2020).

Thus, Sugentech has an ROCE of 34%. That's a fantastic return and not only that, it outpaces the average of 13% earned by companies in a similar industry.

View our latest analysis for Sugentech

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

What The Trend Of ROCE Can Tell Us

Sugentech has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses two years ago, but now it's earning 34% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Sugentech is utilizing 220% more capital than it was two years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

What We Can Learn From Sugentech's ROCE

In summary, it's great to see that Sugentech has managed to break into profitability and is continuing to reinvest in its business. And a remarkable 133% 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.

Sugentech does have some risks though, and we've spotted 2 warning signs for Sugentech that you might be interested in.

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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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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