Does YoungWoo DSPLtd (KOSDAQ:143540) Have The DNA Of A Multi-Bagger?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. And in light of that, the trends we're seeing at YoungWoo DSPLtd's (KOSDAQ:143540) look very promising so lets take a look.

Understanding 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 YoungWoo DSPLtd is:

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

0.27 = ₩19b ÷ (₩131b - ₩62b) (Based on the trailing twelve months to September 2020).

Thus, YoungWoo DSPLtd has an ROCE of 27%. That's a fantastic return and not only that, it outpaces the average of 9.8% earned by companies in a similar industry.

See our latest analysis for YoungWoo DSPLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for YoungWoo DSPLtd's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of YoungWoo DSPLtd, check out these free graphs here.

What Does the ROCE Trend For YoungWoo DSPLtd Tell Us?

We like the trends that we're seeing from YoungWoo DSPLtd. The numbers show that in the last four years, the returns generated on capital employed have grown considerably to 27%. The amount of capital employed has increased too, by 41%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 47%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.

Our Take On YoungWoo DSPLtd's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what YoungWoo DSPLtd has. Given the stock has declined 39% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a separate note, we've found 4 warning signs for YoungWoo DSPLtd you'll probably want to know about.

YoungWoo DSPLtd is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.
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