P&H Tech (KOSDAQ:239890) Is Doing The Right Things To Multiply Its Share Price

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in P&H Tech's (KOSDAQ:239890) returns on capital, so let's have a look.

Understanding 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 P&H Tech, this is the formula:

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

0.11 = ₩6.6b ÷ (₩74b - ₩15b) (Based on the trailing twelve months to March 2024).

Therefore, P&H Tech has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Semiconductor industry average of 5.4% it's much better.

View our latest analysis for P&H Tech

Above you can see how the current ROCE for P&H Tech compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering P&H Tech for free.

What Can We Tell From P&H Tech's ROCE Trend?

We're delighted to see that P&H Tech is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses three years ago, but now it's earning 11% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, P&H Tech is utilizing 235% more capital than it was three 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.

One more thing to note, P&H Tech has decreased current liabilities to 20% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. 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.

The Bottom Line On P&H Tech's ROCE

In summary, it's great to see that P&H Tech has managed to break into profitability and is continuing to reinvest in its business. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know about the risks facing P&H Tech, we've discovered 3 warning signs that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.

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