HYBE (KRX:352820) Might Be Having Difficulty Using Its Capital Effectively

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think HYBE (KRX:352820) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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Understanding Return On Capital Employed (ROCE)

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 HYBE is:

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

0.022 = ₩106b ÷ (₩5.7t - ₩731b) (Based on the trailing twelve months to September 2025).

Thus, HYBE has an ROCE of 2.2%. In absolute terms, that's a low return and it also under-performs the Entertainment industry average of 6.7%.

Check out our latest analysis for HYBE

Above you can see how the current ROCE for HYBE compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering HYBE for free.

The Trend Of ROCE

Unfortunately, the trend isn't great with ROCE falling from 10% five years ago, while capital employed has grown 343%. However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period, so keep that in mind when looking at the ROCE decrease. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with HYBE's earnings and if they change as a result from the capital raise.

In Conclusion...

While returns have fallen for HYBE in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And long term investors must be optimistic going forward because the stock has returned a huge 122% to shareholders in the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.

If you're still interested in HYBE it's worth checking out our FREE intrinsic value approximation for A352820 to see if it's trading at an attractive price in other respects.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.