There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Samsung Publishing (KRX:068290) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
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 Samsung Publishing is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.00031 = ₩51m ÷ (₩233b - ₩72b) (Based on the trailing twelve months to September 2020).
Thus, Samsung Publishing has an ROCE of 0.03%. In absolute terms, that's a low return and it also under-performs the Media industry average of 9.3%.
See our latest analysis for Samsung Publishing
Historical performance is a great place to start when researching a stock so above you can see the gauge for Samsung Publishing's ROCE against it's prior returns. If you'd like to look at how Samsung Publishing has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
The Trend Of ROCE
In terms of Samsung Publishing's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 0.03% from 8.2% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
The Key Takeaway
To conclude, we've found that Samsung Publishing is reinvesting in the business, but returns have been falling. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 124% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.
One final note, you should learn about the 2 warning signs we've spotted with Samsung Publishing (including 1 which is is concerning) .
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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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About KOSE:A068290
Not a dividend payer minimal.
