Has DIGITAL CHOSUN (KOSDAQ:033130) Got What It Takes To Become A Multi-Bagger?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at DIGITAL CHOSUN (KOSDAQ:033130), it didn't seem to tick all of these boxes.

What is Return On Capital Employed (ROCE)?

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 DIGITAL CHOSUN is:

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

0.03 = ₩2.3b ÷ (₩85b - ₩6.0b) (Based on the trailing twelve months to September 2020).

So, DIGITAL CHOSUN has an ROCE of 3.0%. In absolute terms, that's a low return and it also under-performs the Media industry average of 8.6%.

Check out our latest analysis for DIGITAL CHOSUN

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

So How Is DIGITAL CHOSUN's ROCE Trending?

On the surface, the trend of ROCE at DIGITAL CHOSUN doesn't inspire confidence. Over the last five years, returns on capital have decreased to 3.0% from 5.6% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line

To conclude, we've found that DIGITAL CHOSUN is reinvesting in the business, but returns have been falling. And investors appear hesitant that the trends will pick up because the stock has fallen 43% in the last five years. Therefore based on the analysis done in this article, we don't think DIGITAL CHOSUN has the makings of a multi-bagger.

DIGITAL CHOSUN does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those is potentially serious...

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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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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