The Returns At Com2uS (KOSDAQ:078340) Provide Us With Signs Of What's To Come

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. Although, when we looked at Com2uS (KOSDAQ:078340), it didn't seem to tick all of these boxes.

Understanding 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. To calculate this metric for Com2uS, this is the formula:

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

0.13 = ₩125b ÷ (₩1.0t - ₩77b) (Based on the trailing twelve months to June 2020).

So, Com2uS has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Entertainment industry average of 7.6% it's much better.

Check out our latest analysis for Com2uS

Above you can see how the current ROCE for Com2uS compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Com2uS' ROCE Trending?

When we looked at the ROCE trend at Com2uS, we didn't gain much confidence. To be more specific, ROCE has fallen from 58% over the last five years. However it looks like Com2uS might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From Com2uS' ROCE

Bringing it all together, while we're somewhat encouraged by Com2uS' reinvestment in its own business, we're aware that returns are shrinking. Unsurprisingly, the stock has only gained 18% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you want to continue researching Com2uS, you might be interested to know about the 1 warning sign that our analysis has discovered.

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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