We're Watching These Trends At Ubiquoss Holdings (KOSDAQ:078070)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Ubiquoss Holdings (KOSDAQ:078070) and its ROCE trend, we weren't exactly thrilled.

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

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 Ubiquoss Holdings:

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

0.076 = ₩21b ÷ (₩301b - ₩23b) (Based on the trailing twelve months to September 2020).

So, Ubiquoss Holdings has an ROCE of 7.6%. On its own, that's a low figure but it's around the 7.2% average generated by the Communications industry.

View our latest analysis for Ubiquoss Holdings

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 Ubiquoss Holdings, check out these free graphs here.

The Trend Of ROCE

On the surface, the trend of ROCE at Ubiquoss Holdings doesn't inspire confidence. Over the last five years, returns on capital have decreased to 7.6% from 15% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. 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 Ubiquoss Holdings is reinvesting in the business, but returns have been falling. Yet to long term shareholders the stock has gifted them an incredible 342% return in the last five years, so the market appears to be rosy about its future. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

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

While Ubiquoss Holdings 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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