Stock Analysis

Netmarble Joybomb (GTSM:6468) Is Reinvesting At Lower Rates Of Return

  •  Updated
Source: Shutterstock

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Netmarble Joybomb (GTSM:6468), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Netmarble Joybomb, this is the formula:

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

0.05 = NT$27m ÷ (NT$899m - NT$361m) (Based on the trailing twelve months to December 2020).

So, Netmarble Joybomb has an ROCE of 5.0%. Ultimately, that's a low return and it under-performs the Entertainment industry average of 13%.

See our latest analysis for Netmarble Joybomb

GTSM:6468 Return on Capital Employed April 30th 2021

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

So How Is Netmarble Joybomb's ROCE Trending?

When we looked at the ROCE trend at Netmarble Joybomb, we didn't gain much confidence. Around five years ago the returns on capital were 9.7%, but since then they've fallen to 5.0%. However it looks like Netmarble Joybomb 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.

On a side note, Netmarble Joybomb's current liabilities have increased over the last five years to 40% of total assets, effectively distorting the ROCE to some degree. Without this increase, it's likely that ROCE would be even lower than 5.0%. And with current liabilities at these levels, suppliers or short-term creditors are effectively funding a large part of the business, which can introduce some risks.

What We Can Learn From Netmarble Joybomb's ROCE

Bringing it all together, while we're somewhat encouraged by Netmarble Joybomb's reinvestment in its own business, we're aware that returns are shrinking. And with the stock having returned a mere 4.3% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

One more thing: We've identified 2 warning signs with Netmarble Joybomb (at least 1 which can't be ignored) , and understanding these would certainly be useful.

While Netmarble Joybomb isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

If you’re looking to trade a wide range of investments, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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

Find out whether Netmarble Joybomb is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

About TPEX:6468

Netmarble Joybomb

Netmarble Joybomb Inc. develops and publishes mobile, PC, and console games in Taiwan, Hong Kong, and Macau.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Future Growth0
Past Performance1
Financial Health6

Read more about these checks in the individual report sections or in our analysis model.

Flawless balance sheet and good value.

Stock Analysis

No articles found