We Like These Underlying Trends At Jeju Semiconductor (KOSDAQ:080220)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. With that in mind, we've noticed some promising trends at Jeju Semiconductor (KOSDAQ:080220) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

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 Jeju Semiconductor, this is the formula:

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

0.081 = ₩9.9b ÷ (₩217b - ₩94b) (Based on the trailing twelve months to September 2020).

Thus, Jeju Semiconductor has an ROCE of 8.1%. On its own, that's a low figure but it's around the 9.8% average generated by the Semiconductor industry.

View our latest analysis for Jeju Semiconductor

Historical performance is a great place to start when researching a stock so above you can see the gauge for Jeju Semiconductor's ROCE against it's prior returns. If you're interested in investigating Jeju Semiconductor's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

The fact that Jeju Semiconductor is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 8.1% on its capital. And unsurprisingly, like most companies trying to break into the black, Jeju Semiconductor is utilizing 186% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

On a side note, Jeju Semiconductor's current liabilities are still rather high at 43% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On Jeju Semiconductor's ROCE

In summary, it's great to see that Jeju Semiconductor has managed to break into profitability and is continuing to reinvest in its business. Since the stock has only returned 30% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

If you want to know some of the risks facing Jeju Semiconductor we've found 3 warning signs (1 is a bit unpleasant!) that you should be aware of before investing here.

While Jeju Semiconductor 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.

When trading Jeju Semiconductor or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.