To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. So when we looked at D.I (KRX:003160) and its trend of ROCE, we really liked what we saw.
What is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for D.I, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.031 = ₩5.5b ÷ (₩229b - ₩55b) (Based on the trailing twelve months to December 2020).
So, D.I has an ROCE of 3.1%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 8.9%.
See our latest analysis for D.I
Historical performance is a great place to start when researching a stock so above you can see the gauge for D.I's ROCE against it's prior returns. If you'd like to look at how D.I has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What Can We Tell From D.I's ROCE Trend?
Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Over the last five years, returns on capital employed have risen substantially to 3.1%. The amount of capital employed has increased too, by 36%. So we're very much inspired by what we're seeing at D.I thanks to its ability to profitably reinvest capital.
The Key Takeaway
All in all, it's terrific to see that D.I is reaping the rewards from prior investments and is growing its capital base. And with a respectable 57% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if D.I can keep these trends up, it could have a bright future ahead.
Like most companies, D.I does come with some risks, and we've found 3 warning signs that you should be aware of.
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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About KOSE:A003160
D.I
Manufactures and supplies semiconductor inspection equipment in South Korea and internationally.
Exceptional growth potential with adequate balance sheet.
