Slowing Rates Of Return At LG Uplus (KRX:032640) Leave Little Room For Excitement

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. However, after investigating LG Uplus (KRX:032640), we don't think it's current trends fit the mold of a multi-bagger.

Our free stock report includes 4 warning signs investors should be aware of before investing in LG Uplus. Read for free now.

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 LG Uplus:

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

0.059 = ₩863b ÷ (₩20t - ₩5.1t) (Based on the trailing twelve months to December 2024).

Thus, LG Uplus has an ROCE of 5.9%. In absolute terms, that's a low return and it also under-performs the Telecom industry average of 10%.

Check out our latest analysis for LG Uplus

In the above chart we have measured LG Uplus' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for LG Uplus .

So How Is LG Uplus' ROCE Trending?

Over the past five years, LG Uplus' ROCE and capital employed have both remained mostly flat. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect LG Uplus to be a multi-bagger going forward. With fewer investment opportunities, it makes sense that LG Uplus has been paying out a decent 44% of its earnings to shareholders. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

The Bottom Line On LG Uplus' ROCE

In a nutshell, LG Uplus has been trudging along with the same returns from the same amount of capital over the last five years. And investors may be recognizing these trends since the stock has only returned a total of 12% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

On a final note, we've found 4 warning signs for LG Uplus that we think you should be aware of.

While LG Uplus may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.