Investors Met With Slowing Returns on Capital At Pum-Tech Korea (KOSDAQ:251970)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Having said that, from a first glance at Pum-Tech Korea (KOSDAQ:251970) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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

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. The formula for this calculation on Pum-Tech Korea is:

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

0.12 = ₩27b ÷ (₩286b - ₩56b) (Based on the trailing twelve months to December 2020).

Thus, Pum-Tech Korea has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Packaging industry average of 5.0% it's much better.

Check out our latest analysis for Pum-Tech Korea

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

What Does the ROCE Trend For Pum-Tech Korea Tell Us?

Over the past one year, Pum-Tech Korea's ROCE and capital employed have both remained mostly flat. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So unless we see a substantial change at Pum-Tech Korea in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

On a side note, Pum-Tech Korea has done well to reduce current liabilities to 20% of total assets over the last one year. Effectively suppliers now fund less of the business, which can lower some elements of risk.

In Conclusion...

In a nutshell, Pum-Tech Korea has been trudging along with the same returns from the same amount of capital over the last one year. Since the stock has gained an impressive 58% over the last year, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Pum-Tech Korea does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

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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