The Trends At ITM Semiconductor (KOSDAQ:084850) That You Should Know About

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at ITM Semiconductor (KOSDAQ:084850) and its ROCE trend, we weren't exactly thrilled.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for ITM Semiconductor:

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

0.098 = ₩30b ÷ (₩469b - ₩162b) (Based on the trailing twelve months to September 2020).

Therefore, ITM Semiconductor has an ROCE of 9.8%. Even though it's in line with the industry average of 9.8%, it's still a low return by itself.

See our latest analysis for ITM Semiconductor

In the above chart we have measured ITM Semiconductor's 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 ITM Semiconductor here for free.

What Does the ROCE Trend For ITM Semiconductor Tell Us?

There hasn't been much to report for ITM Semiconductor's returns and its level of capital employed because both metrics have been steady for the past . Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if ITM Semiconductor doesn't end up being a multi-bagger in a few years time.

The Key Takeaway

We can conclude that in regards to ITM Semiconductor's returns on capital employed and the trends, there isn't much change to report on. And investors appear hesitant that the trends will pick up because the stock has fallen 14% in the last year. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

One more thing to note, we've identified 2 warning signs with ITM Semiconductor and understanding these should be part of your investment process.

While ITM 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.

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