Seronics (KOSDAQ:042600) Will Be Hoping To Turn Its Returns On Capital Around

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Seronics (KOSDAQ:042600), we don't think it's current trends fit the mold of a multi-bagger.

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. Analysts use this formula to calculate it for Seronics:

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

0.0018 = ₩390m ÷ (₩323b - ₩108b) (Based on the trailing twelve months to December 2023).

So, Seronics has an ROCE of 0.2%. Ultimately, that's a low return and it under-performs the Electronic industry average of 6.3%.

Check out our latest analysis for Seronics

Historical performance is a great place to start when researching a stock so above you can see the gauge for Seronics' ROCE against it's prior returns. If you're interested in investigating Seronics' past further, check out this free graph covering Seronics' past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at Seronics doesn't inspire confidence. To be more specific, ROCE has fallen from 4.8% over the last five years. However it looks like Seronics might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

In Conclusion...

To conclude, we've found that Seronics is reinvesting in the business, but returns have been falling. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 449% gain to shareholders who have held over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

Like most companies, Seronics does come with some risks, and we've found 1 warning sign that you should be aware of.

While Seronics isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.