Stock Analysis

Under The Bonnet, CUCKOO Homesys' (KRX:284740) Returns Look Impressive

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KOSE:A284740
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If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. So when we looked at the ROCE trend of CUCKOO Homesys (KRX:284740) we really liked what we saw.

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. Analysts use this formula to calculate it for CUCKOO Homesys:

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

0.25 = ₩139b ÷ (₩693b - ₩140b) (Based on the trailing twelve months to September 2020).

Therefore, CUCKOO Homesys has an ROCE of 25%. That's a fantastic return and not only that, it outpaces the average of 9.1% earned by companies in a similar industry.

See our latest analysis for CUCKOO Homesys

roce
KOSE:A284740 Return on Capital Employed December 24th 2020

In the above chart we have measured CUCKOO Homesys' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering CUCKOO Homesys here for free.

What The Trend Of ROCE Can Tell Us

The trends we've noticed at CUCKOO Homesys are quite reassuring. Over the last two years, returns on capital employed have risen substantially to 25%. Basically the business is earning more per dollar of capital invested and in addition to that, 39% more capital is being employed now too. So we're very much inspired by what we're seeing at CUCKOO Homesys thanks to its ability to profitably reinvest capital.

The Key Takeaway

In summary, it's great to see that CUCKOO Homesys can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the total return from the stock has been almost flat over the last year, there might be an opportunity here if the valuation looks good. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a separate note, we've found 1 warning sign for CUCKOO Homesys you'll probably want to know about.

CUCKOO Homesys is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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Valuation is complex, but we're helping make it simple.

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About KOSE:A284740

CUCKOO Homesys

Cuckoo Homesys Co., Ltd. engages in the manufacture, sale, and rental of household appliances.

Excellent balance sheet second-rate dividend payer.

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