What Do The Returns At Nepes (KOSDAQ:033640) Mean Going Forward?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Nepes (KOSDAQ:033640) so let's look a bit deeper.

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 Nepes, this is the formula:

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

0.069 = ₩35b ÷ (₩639b - ₩131b) (Based on the trailing twelve months to June 2020).

Therefore, Nepes has an ROCE of 6.9%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 9.0%.

Check out our latest analysis for Nepes

In the above chart we have measured Nepes' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Nepes.

So How Is Nepes' ROCE Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 6.9%. The amount of capital employed has increased too, by 85%. So we're very much inspired by what we're seeing at Nepes thanks to its ability to profitably reinvest capital.

In Conclusion...

In summary, it's great to see that Nepes 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. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to know some of the risks facing Nepes we've found 3 warning signs (2 shouldn't be ignored!) that you should be aware of before investing here.

While Nepes 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. 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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