Is Hansol Logistics (KRX:009180) A Future Multi-bagger?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Hansol Logistics (KRX:009180) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Hansol Logistics:

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

0.15 = ₩13b ÷ (₩185b - ₩95b) (Based on the trailing twelve months to September 2020).

So, Hansol Logistics has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Logistics industry average of 5.0% it's much better.

See our latest analysis for Hansol Logistics

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

The Trend Of ROCE

The fact that Hansol Logistics is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 15% on its capital. Not only that, but the company is utilizing 99% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

Another thing to note, Hansol Logistics has a high ratio of current liabilities to total assets of 52%. 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. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

What We Can Learn From Hansol Logistics' ROCE

Long story short, we're delighted to see that Hansol Logistics' reinvestment activities have paid off and the company is now profitable. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 57% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

Like most companies, Hansol Logistics does come with some risks, and we've found 2 warning signs that you should be aware of.

While Hansol Logistics 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. 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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