Stock Analysis

KSS Line (KRX:044450) Hasn't Managed To Accelerate Its Returns

KOSE:A044450
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What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. In light of that, when we looked at KSS Line (KRX:044450) and its ROCE trend, we weren't exactly thrilled.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for KSS Line:

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

0.061 = ₩51b ÷ (₩1.1t - ₩240b) (Based on the trailing twelve months to December 2020).

So, KSS Line has an ROCE of 6.1%. In absolute terms, that's a low return but it's around the Shipping industry average of 5.2%.

Check out our latest analysis for KSS Line

roce
KOSE:A044450 Return on Capital Employed April 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.

So How Is KSS Line's ROCE Trending?

The returns on capital haven't changed much for KSS Line in recent years. Over the past five years, ROCE has remained relatively flat at around 6.1% and the business has deployed 81% 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.

In Conclusion...

In conclusion, KSS Line has been investing more capital into the business, but returns on that capital haven't increased. Although the market must be expecting these trends to improve because the stock has gained 50% over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

KSS Line does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

While KSS Line 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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Valuation is complex, but we're helping make it simple.

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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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