NEOWIZ HOLDINGS (KOSDAQ:042420) Hasn't Managed To Accelerate Its Returns

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think NEOWIZ HOLDINGS (KOSDAQ:042420) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on NEOWIZ HOLDINGS is:

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

0.041 = ₩31b ÷ (₩916b - ₩153b) (Based on the trailing twelve months to March 2024).

Therefore, NEOWIZ HOLDINGS has an ROCE of 4.1%. Ultimately, that's a low return and it under-performs the Entertainment industry average of 7.2%.

See our latest analysis for NEOWIZ HOLDINGS

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

What The Trend Of ROCE Can Tell Us

There are better returns on capital out there than what we're seeing at NEOWIZ HOLDINGS. The company has employed 40% more capital in the last five years, and the returns on that capital have remained stable at 4.1%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

In Conclusion...

In conclusion, NEOWIZ HOLDINGS has been investing more capital into the business, but returns on that capital haven't increased. Unsurprisingly, the stock has only gained 10% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

One more thing: We've identified 2 warning signs with NEOWIZ HOLDINGS (at least 1 which is a bit concerning) , and understanding these would certainly be useful.

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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com