Investors Will Want Devsisters' (KOSDAQ:194480) Growth In ROCE To Persist

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Speaking of which, we noticed some great changes in Devsisters' (KOSDAQ:194480) returns on capital, so let's have a look.

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Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Devsisters, this is the formula:

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

0.12 = ₩27b ÷ (₩260b - ₩37b) (Based on the trailing twelve months to December 2024).

Thus, Devsisters has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Entertainment industry average of 6.1% it's much better.

Check out our latest analysis for Devsisters

Above you can see how the current ROCE for Devsisters compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Devsisters .

How Are Returns Trending?

Devsisters has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 12% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Devsisters is utilizing 91% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

Our Take On Devsisters' ROCE

In summary, it's great to see that Devsisters has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a staggering 300% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for A194480 that compares the share price and estimated value.

While Devsisters 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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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.