The Trends At Ubiquoss (KOSDAQ:264450) That You Should Know About

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Ubiquoss (KOSDAQ:264450), we don't think it's current trends fit the mold of a multi-bagger.

What is 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. The formula for this calculation on Ubiquoss is:

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

0.17 = ₩18b ÷ (₩129b - ₩24b) (Based on the trailing twelve months to September 2020).

Therefore, Ubiquoss has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Communications industry average of 7.2% it's much better.

See our latest analysis for Ubiquoss

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

So How Is Ubiquoss' ROCE Trending?

When we looked at the ROCE trend at Ubiquoss, we didn't gain much confidence. Around two years ago the returns on capital were 26%, but since then they've fallen to 17%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

Our Take On Ubiquoss' ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Ubiquoss is reinvesting for growth and has higher sales as a result. Furthermore the stock has climbed 82% over the last three years, it would appear that investors are upbeat about the future. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

One more thing to note, we've identified 1 warning sign with Ubiquoss and understanding it should be part of your investment process.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. 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.
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