The Returns At Pum-Tech Korea (KOSDAQ:251970) Provide Us With Signs Of What's To Come

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. 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.

Understanding 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 Pum-Tech Korea, this is the formula:

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

0.12 = ₩27b ÷ (₩284b - ₩47b) (Based on the trailing twelve months to September 2020).

Therefore, Pum-Tech Korea has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 5.4% generated by the Packaging industry.

Check out our latest analysis for Pum-Tech Korea

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 Pum-Tech Korea's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

When we looked at the ROCE trend at Pum-Tech Korea, we didn't gain much confidence. Over the last one year, returns on capital have decreased to 12% from 15% one year ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

The Key Takeaway

In summary, despite lower returns in the short term, we're encouraged to see that Pum-Tech Korea is reinvesting for growth and has higher sales as a result. However, despite the promising trends, the stock has fallen 21% over the last year, so there might be an opportunity here for astute investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

On a final note, we found 3 warning signs for Pum-Tech Korea (1 doesn't sit too well with us) you should be aware of.

While Pum-Tech Korea may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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