Can MCNEX (KOSDAQ:097520) Keep Up These Impressive Returns?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. With that in mind, the ROCE of MCNEX (KOSDAQ:097520) looks attractive right now, so lets see what the trend of returns can tell us.

What is Return On Capital Employed (ROCE)?

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 MCNEX:

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

0.27 = ₩75b ÷ (₩630b - ₩349b) (Based on the trailing twelve months to September 2020).

So, MCNEX has an ROCE of 27%. In absolute terms that's a great return and it's even better than the Electronic industry average of 5.6%.

Check out our latest analysis for MCNEX

Above you can see how the current ROCE for MCNEX compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering MCNEX here for free.

What Does the ROCE Trend For MCNEX Tell Us?

We'd be pretty happy with returns on capital like MCNEX. Over the past five years, ROCE has remained relatively flat at around 27% and the business has deployed 139% more capital into its operations. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If MCNEX can keep this up, we'd be very optimistic about its future.

On a separate but related note, it's important to know that MCNEX has a current liabilities to total assets ratio of 55%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On MCNEX's ROCE

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. And long term investors would be thrilled with the 141% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for MCNEX (of which 2 are concerning!) that you should know about.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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