Techwing (KOSDAQ:089030) Will Want To Turn Around Its Return Trends

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think Techwing (KOSDAQ:089030) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. The formula for this calculation on Techwing is:

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

0.039 = ₩14b ÷ (₩499b - ₩151b) (Based on the trailing twelve months to June 2024).

Therefore, Techwing has an ROCE of 3.9%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 5.4%.

View our latest analysis for Techwing

In the above chart we have measured Techwing's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Techwing .

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at Techwing, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 3.9% from 8.7% five years ago. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

Our Take On Techwing's ROCE

In summary, we're somewhat concerned by Techwing's diminishing returns on increasing amounts of capital. Yet despite these poor fundamentals, the stock has gained a huge 730% over the last five years, so investors appear very optimistic. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

Techwing does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those can't be ignored...

While Techwing 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.