What Do The Returns At Gemvaxlink (KOSDAQ:064800) Mean Going Forward?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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 on that note, Gemvaxlink (KOSDAQ:064800) looks quite promising in regards to its trends of return on capital.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Gemvaxlink:

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

0.029 = ₩4.6b ÷ (₩192b - ₩35b) (Based on the trailing twelve months to September 2020).

Therefore, Gemvaxlink has an ROCE of 2.9%. Ultimately, that's a low return and it under-performs the Software industry average of 8.5%.

View our latest analysis for Gemvaxlink

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 Gemvaxlink, check out these free graphs here.

What Does the ROCE Trend For Gemvaxlink Tell Us?

Gemvaxlink has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 2.9% which is a sight for sore eyes. In addition to that, Gemvaxlink is employing 492% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

In Conclusion...

In summary, it's great to see that Gemvaxlink has managed to break into profitability and is continuing to reinvest in its business. Astute investors may have an opportunity here because the stock has declined 45% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a separate note, we've found 1 warning sign for Gemvaxlink you'll probably want to know about.

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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