Samhyun Steel (KOSDAQ:017480) Hasn't Managed To Accelerate Its Returns

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Samhyun Steel (KOSDAQ:017480), it didn't seem to tick all of these boxes.

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

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 Samhyun Steel is:

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

0.056 = ₩8.6b ÷ (₩185b - ₩30b) (Based on the trailing twelve months to December 2020).

Therefore, Samhyun Steel has an ROCE of 5.6%. In absolute terms, that's a low return, but it's much better than the Metals and Mining industry average of 4.7%.

See our latest analysis for Samhyun Steel

Historical performance is a great place to start when researching a stock so above you can see the gauge for Samhyun Steel's ROCE against it's prior returns. If you'd like to look at how Samhyun Steel has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Samhyun Steel's ROCE Trending?

Over the past five years, Samhyun Steel's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Samhyun Steel in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

In Conclusion...

In a nutshell, Samhyun Steel has been trudging along with the same returns from the same amount of capital over the last five years. Although the market must be expecting these trends to improve because the stock has gained 55% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you want to continue researching Samhyun Steel, you might be interested to know about the 1 warning sign that our analysis has discovered.

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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