Can NewtreeLtd (KOSDAQ:270870) Prolong Its Impressive Returns?

By
Simply Wall St
Published
March 16, 2021
KOSDAQ:A270870
Source: Shutterstock

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. Ergo, when we looked at the ROCE trends at NewtreeLtd (KOSDAQ:270870), we liked what we saw.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for NewtreeLtd:

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

0.27 = ₩22b ÷ (₩102b - ₩21b) (Based on the trailing twelve months to September 2020).

So, NewtreeLtd has an ROCE of 27%. That's a fantastic return and not only that, it outpaces the average of 7.9% earned by companies in a similar industry.

View our latest analysis for NewtreeLtd

roce
KOSDAQ:A270870 Return on Capital Employed March 17th 2021

In the above chart we have measured NewtreeLtd's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

NewtreeLtd deserves to be commended in regards to it's returns. The company has employed 437% more capital in the last three years, and the returns on that capital have remained stable at 27%. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If NewtreeLtd can keep this up, we'd be very optimistic about its future.

What We Can Learn From NewtreeLtd's ROCE

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. Therefore it's no surprise that shareholders have earned a respectable 95% return if they held over the last year. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

On a final note, we've found 1 warning sign for NewtreeLtd that we think you should be aware of.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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