Stock Analysis

We Like CUCKOO Homesys' (KRX:284740) Returns And Here's How They're Trending

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KOSE:A284740
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To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Speaking of which, we noticed some great changes in CUCKOO Homesys' (KRX:284740) returns on capital, so let's have a look.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for CUCKOO Homesys, this is the formula:

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

0.22 = ₩122b ÷ (₩708b - ₩145b) (Based on the trailing twelve months to December 2020).

So, CUCKOO Homesys has an ROCE of 22%. That's a fantastic return and not only that, it outpaces the average of 9.0% earned by companies in a similar industry.

See our latest analysis for CUCKOO Homesys

roce
KOSE:A284740 Return on Capital Employed April 1st 2021

Above you can see how the current ROCE for CUCKOO Homesys 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 CUCKOO Homesys' ROCE Trending?

CUCKOO Homesys is displaying some positive trends. The data shows that returns on capital have increased substantially over the last three years to 22%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 50%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From CUCKOO Homesys' ROCE

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 stock has returned a solid 24% to shareholders over the last three years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if CUCKOO Homesys can keep these trends up, it could have a bright future ahead.

CUCKOO Homesys does have some risks though, and we've spotted 1 warning sign for CUCKOO Homesys that you might be interested in.

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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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