Is Tapex (KRX:055490) Likely To Turn Things Around?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Tapex (KRX:055490) looks decent, right now, so lets see what the trend of returns can tell us.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Tapex, this is the formula:

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

0.11 = ₩13b ÷ (₩159b - ₩35b) (Based on the trailing twelve months to September 2020).

Thus, Tapex has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 8.0% generated by the Chemicals industry.

See our latest analysis for Tapex

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 Tapex's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Tapex's ROCE Trend?

While the current returns on capital are decent, they haven't changed much. The company has employed 29% more capital in the last five years, and the returns on that capital have remained stable at 11%. 11% is a pretty standard return, and it provides some comfort knowing that Tapex has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

In Conclusion...

The main thing to remember is that Tapex has proven its ability to continually reinvest at respectable rates of return. And the stock has followed suit returning a meaningful 68% to shareholders over the last three years. 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 Tapex that we think you should be aware of.

While Tapex isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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