Return Trends At Samsung SDSLtd (KRX:018260) Aren't Appealing

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. So, when we ran our eye over Samsung SDSLtd's (KRX:018260) trend of ROCE, we liked what we saw.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Samsung SDSLtd:

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

0.12 = ₩872b ÷ (₩9.2t - ₩1.7t) (Based on the trailing twelve months to December 2020).

Thus, Samsung SDSLtd has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 10% generated by the IT industry.

Check out our latest analysis for Samsung SDSLtd

In the above chart we have measured Samsung SDSLtd's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 12% and the business has deployed 50% more capital into its operations. 12% is a pretty standard return, and it provides some comfort knowing that Samsung SDSLtd has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Key Takeaway

To sum it up, Samsung SDSLtd has simply been reinvesting capital steadily, at those decent rates of return. And given the stock has only risen 17% over the last five years, we'd suspect the market is beginning to recognize these trends. So to determine if Samsung SDSLtd is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

If you want to continue researching Samsung SDSLtd, you might be interested to know about the 2 warning signs that our analysis has discovered.

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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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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