Hanexpress.Co (KRX:014130) Is Reinvesting At Lower Rates Of Return

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Although, when we looked at Hanexpress.Co (KRX:014130), it didn't seem to tick all of these boxes.

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. To calculate this metric for Hanexpress.Co, this is the formula:

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

0.019 = ₩4.0b ÷ (₩431b - ₩217b) (Based on the trailing twelve months to September 2024).

Therefore, Hanexpress.Co has an ROCE of 1.9%. Ultimately, that's a low return and it under-performs the Transportation industry average of 3.4%.

Check out our latest analysis for Hanexpress.Co

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

What Can We Tell From Hanexpress.Co's ROCE Trend?

In terms of Hanexpress.Co's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 9.8% over the last five years. However it looks like Hanexpress.Co 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 may take some time before the company starts to see any change in earnings from these investments.

Another thing to note, Hanexpress.Co has a high ratio of current liabilities to total assets of 50%. 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.

Our Take On Hanexpress.Co's ROCE

In summary, Hanexpress.Co is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors appear hesitant that the trends will pick up because the stock has fallen 17% in the last five years. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Hanexpress.Co (of which 2 shouldn't be ignored!) that you should know about.

While Hanexpress.Co 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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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.