We're Watching These Trends At POINT ENGINEERINGLtd (KOSDAQ:256630)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think POINT ENGINEERINGLtd (KOSDAQ:256630) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Return On Capital Employed (ROCE): What is it?

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. The formula for this calculation on POINT ENGINEERINGLtd is:

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

0.10 = ₩8.4b ÷ (₩104b - ₩22b) (Based on the trailing twelve months to September 2020).

Therefore, POINT ENGINEERINGLtd has an ROCE of 10%. By itself that's a normal return on capital and it's in line with the industry's average returns of 9.8%.

View our latest analysis for POINT ENGINEERINGLtd

Above you can see how the current ROCE for POINT ENGINEERINGLtd 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 POINT ENGINEERINGLtd here for free.

So How Is POINT ENGINEERINGLtd's ROCE Trending?

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

What We Can Learn From POINT ENGINEERINGLtd's ROCE

In summary, POINT ENGINEERINGLtd isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Although the market must be expecting these trends to improve because the stock has gained 45% over the last year. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

One more thing to note, we've identified 3 warning signs with POINT ENGINEERINGLtd and understanding them should be part of your investment process.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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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