We're Watching These Trends At KL-Net (KOSDAQ:039420)

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at KL-Net (KOSDAQ:039420) and its ROCE trend, we weren't exactly thrilled.

What is 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. Analysts use this formula to calculate it for KL-Net:

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

0.092 = ₩3.8b ÷ (₩47b - ₩6.0b) (Based on the trailing twelve months to September 2020).

Thus, KL-Net has an ROCE of 9.2%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.6%.

See our latest analysis for KL-Net

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of KL-Net, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

There hasn't been much to report for KL-Net's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at KL-Net in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

Our Take On KL-Net's ROCE

We can conclude that in regards to KL-Net's returns on capital employed and the trends, there isn't much change to report on. Unsurprisingly, the stock has only gained 11% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you'd like to know about the risks facing KL-Net, we've discovered 1 warning sign that you should be aware of.

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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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