Will Daesung Holdings (KRX:016710) Multiply In Value Going Forward?

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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 Daesung Holdings (KRX:016710) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding 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. To calculate this metric for Daesung Holdings, this is the formula:

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

0.035 = ₩28b ÷ (₩1.1t - ₩239b) (Based on the trailing twelve months to September 2020).

Thus, Daesung Holdings has an ROCE of 3.5%. On its own, that's a low figure but it's around the 3.8% average generated by the Gas Utilities industry.

View our latest analysis for Daesung Holdings

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

How Are Returns Trending?

Things have been pretty stable at Daesung Holdings, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Daesung Holdings in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

The Bottom Line On Daesung Holdings' ROCE

We can conclude that in regards to Daesung Holdings' returns on capital employed and the trends, there isn't much change to report on. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 249% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you're still interested in Daesung Holdings it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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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