We're Watching These Trends At Hyundai Energy SolutionsLtd (KRX:322000)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Having said that, from a first glance at Hyundai Energy SolutionsLtd (KRX:322000) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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

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. The formula for this calculation on Hyundai Energy SolutionsLtd is:

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

0.05 = ₩17b ÷ (₩413b - ₩77b) (Based on the trailing twelve months to June 2020).

So, Hyundai Energy SolutionsLtd has an ROCE of 5.0%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 8.8%.

See our latest analysis for Hyundai Energy SolutionsLtd

Above you can see how the current ROCE for Hyundai Energy SolutionsLtd 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 Hyundai Energy SolutionsLtd here for free.

So How Is Hyundai Energy SolutionsLtd's ROCE Trending?

There hasn't been much to report for Hyundai Energy SolutionsLtd's returns and its level of capital employed because both metrics have been steady for the past . It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So unless we see a substantial change at Hyundai Energy SolutionsLtd in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

Our Take On Hyundai Energy SolutionsLtd's ROCE

In a nutshell, Hyundai Energy SolutionsLtd has been trudging along with the same returns from the same amount of capital over the last . Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 151% gain to shareholders who have held 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: We've identified 3 warning signs with Hyundai Energy SolutionsLtd (at least 1 which makes us a bit uncomfortable) , and understanding them would certainly be useful.

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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