Can LB Semicon (KOSDAQ:061970) Continue To Grow Its Returns On Capital?

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, LB Semicon (KOSDAQ:061970) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for LB Semicon:

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

0.12 = ₩36b ÷ (₩492b - ₩187b) (Based on the trailing twelve months to September 2020).

Thus, LB Semicon has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Semiconductor industry average of 9.8% it's much better.

View our latest analysis for LB Semicon

Above you can see how the current ROCE for LB Semicon compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering LB Semicon here for free.

The Trend Of ROCE

We like the trends that we're seeing from LB Semicon. The data shows that returns on capital have increased substantially over the last two years to 12%. The amount of capital employed has increased too, by 33%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On LB Semicon's ROCE

All in all, it's terrific to see that LB Semicon is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 932% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to continue researching LB Semicon, you might be interested to know about the 3 warning signs that our analysis has discovered.

While LB Semicon 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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