Will DAEA TI (KOSDAQ:045390) Multiply In Value Going Forward?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at DAEA TI (KOSDAQ:045390), it didn't seem to tick all of these boxes.

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. To calculate this metric for DAEA TI, this is the formula:

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

0.086 = ₩9.3b ÷ (₩153b - ₩46b) (Based on the trailing twelve months to September 2020).

So, DAEA TI has an ROCE of 8.6%. In absolute terms, that's a low return, but it's much better than the Electronic industry average of 5.6%.

Check out our latest analysis for DAEA TI

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 DAEA TI, check out these free graphs here.

What Can We Tell From DAEA TI's ROCE Trend?

In terms of DAEA TI's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 8.6% for the last five years, and the capital employed within the business has risen 50% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line

Long story short, while DAEA TI has been reinvesting its capital, the returns that it's generating haven't increased. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 348% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

DAEA TI does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable...

While DAEA TI 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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