Worldex Industry & Trading (KOSDAQ:101160) Is Reinvesting To Multiply In Value

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. That's why when we briefly looked at Worldex Industry & Trading's (KOSDAQ:101160) ROCE trend, we were very happy with what we saw.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Worldex Industry & Trading, this is the formula:

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

0.21 = ₩64b ÷ (₩364b - ₩60b) (Based on the trailing twelve months to September 2024).

Therefore, Worldex Industry & Trading has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Semiconductor industry average of 6.5%.

Check out our latest analysis for Worldex Industry & Trading

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Worldex Industry & Trading has performed in the past in other metrics, you can view this free graph of Worldex Industry & Trading's past earnings, revenue and cash flow.

What Can We Tell From Worldex Industry & Trading's ROCE Trend?

In terms of Worldex Industry & Trading's history of ROCE, it's quite impressive. The company has employed 185% more capital in the last five years, and the returns on that capital have remained stable at 21%. Now considering ROCE is an attractive 21%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 17% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Key Takeaway

In summary, we're delighted to see that Worldex Industry & Trading has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And long term investors would be thrilled with the 281% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

While Worldex Industry & Trading looks impressive, no company is worth an infinite price. The intrinsic value infographic for A101160 helps visualize whether it is currently trading for a fair price.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.