Our Take On The Returns On Capital At PNC Technologies (KOSDAQ:237750)

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at PNC Technologies (KOSDAQ:237750), 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 PNC Technologies, this is the formula:

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

0.018 = ₩1.1b ÷ (₩71b - ₩7.1b) (Based on the trailing twelve months to September 2020).

Therefore, PNC Technologies has an ROCE of 1.8%. Ultimately, that's a low return and it under-performs the Electronic industry average of 5.6%.

Check out our latest analysis for PNC Technologies

Historical performance is a great place to start when researching a stock so above you can see the gauge for PNC Technologies' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of PNC Technologies, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at PNC Technologies, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 1.8% from 23% five years ago. However it looks like PNC Technologies 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's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

In Conclusion...

Bringing it all together, while we're somewhat encouraged by PNC Technologies' reinvestment in its own business, we're aware that returns are shrinking. And investors appear hesitant that the trends will pick up because the stock has fallen 28% in the last three years. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

PNC Technologies does come with some risks though, we found 5 warning signs in our investment analysis, and 1 of those is a bit concerning...

While PNC Technologies 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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