Stock Analysis

Has KSS Line (KRX:044450) Got What It Takes To Become A Multi-Bagger?

KOSE:A044450
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Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think KSS Line (KRX:044450) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. The formula for this calculation on KSS Line is:

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

0.062 = ₩53b ÷ (₩1.0t - ₩156b) (Based on the trailing twelve months to September 2020).

So, KSS Line has an ROCE of 6.2%. On its own that's a low return, but compared to the average of 4.7% generated by the Shipping industry, it's much better.

See our latest analysis for KSS Line

roce
KOSE:A044450 Return on Capital Employed January 10th 2021

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating KSS Line's past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

In terms of KSS Line's historical ROCE trend, it doesn't exactly demand attention. Over the past five years, ROCE has remained relatively flat at around 6.2% and the business has deployed 90% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line

In summary, KSS Line has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has gained an impressive 57% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

If you want to continue researching KSS Line, you might be interested to know about the 1 warning sign that our analysis has discovered.

While KSS Line 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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