If we want to find a stock that can multiply over the long term, what underlying trends should we look for? First, we want to identify a growth come back on capital employed (ROCE) and then alongside that an ever-increasing one base of capital employed. Simply put, these types of companies are compounding machines, meaning they are continually reinvesting their earnings at higher and higher rates of return. Although, when we look NR Spuntech Industries (TLV:SPNTC), didn’t seem to check all these boxes.
Understanding Return on Capital Employed (ROCE)
For those who aren’t sure what ROCE is, it measures the amount of pre-tax profit a company can generate from the capital employed in its business. Analysts use this formula to calculate it for NR Spunttech Industries:
Return on capital employed = Earnings before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)
0.011 = 5.6 ₪ m ÷ (722 ₪ – 227 m) (Based on the trailing twelve months to June 2022).
Thus, NR Spunttech Industries has a ROCE of 1.1%. In absolute terms, it is a low performer and also underperforms the Personal Products industry average of 10%.
Check out our latest analysis for NR Spunttech Industries
Historical performance is a great place to start when researching a stock, so above you can see NR Spunttech Industries’ ROCE indicator against its past performance. If you want to see how NR Spunttech Industries has performed in the past in other metrics, you can see this free chart of past earnings, revenue and cash flow.
So how is the ROCE trend of NR Spunttech Industries?
When we look at the ROCE trend at NR Spunttech Industries, we don’t gain much confidence. Over the past five years, return on equity has declined to 1.1% from 7.5% five years ago. However, it appears that NR Spunttech Industries may be reinvesting for long-term growth because while capital employed has increased, the company’s sales haven’t changed much over the past 12 months. It’s worth keeping an eye on the company’s earnings from here to see if these investments end up contributing to the bottom line.
The ROCE bottom line of NR Spunttech Industries
In short, NR Spunttech Industries is reinvesting funds into the business to grow, but unfortunately, it looks like sales haven’t picked up much yet. And investors seem doubtful that trends will pick up because the stock has fallen 53% over the past five years. In any case, the stock doesn’t have these characteristics of a multi-bagger discussed above, so if that’s what you’re after, we think you’d have better luck elsewhere.
One final note, you should learn about the 3 warning signs we came up with NR Spunttech Industries (including 2 that make us uncomfortable).
While NR Spunttech Industries may not currently be earning the highest returns, we have compiled a list of companies that are currently earning over 25% return on equity. Check this out free list here
Valuation is complex, but we’re helping to make it simple.
Find out if NR Spuntech Industries is potentially overvalued or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and caveats, dividends, insider trading and financial health.
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This Simply Wall St article 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 shares, nor does it take into account your goals or financial situation. We aim to provide you with long-term focused analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company listings or qualitative material. Simply Wall St has no position in any of the stocks mentioned.