Has ZUM Internet (KOSDAQ:239340) 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? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Having said that, from a first glance at ZUM Internet (KOSDAQ:239340) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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

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. To calculate this metric for ZUM Internet, this is the formula:

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

0.053 = ₩1.6b ÷ (₩35b - ₩4.7b) (Based on the trailing twelve months to June 2020).

So, ZUM Internet has an ROCE of 5.3%. In absolute terms, that's a low return and it also under-performs the Interactive Media and Services industry average of 12%.

Check out our latest analysis for ZUM Internet

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

What Can We Tell From ZUM Internet's ROCE Trend?

In terms of ZUM Internet's historical ROCE trend, it doesn't exactly demand attention. Over the past one year, ROCE has remained relatively flat at around 5.3% and the business has deployed 28% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

What We Can Learn From ZUM Internet's ROCE

Long story short, while ZUM Internet has been reinvesting its capital, the returns that it's generating haven't increased. Since the stock has gained an impressive 29% over the last year, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you want to know some of the risks facing ZUM Internet we've found 4 warning signs (1 doesn't sit too well with us!) that you should be aware of before investing here.

While ZUM Internet may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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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