Has Amir Marketing and Investments in Agriculture (TLV:AMRK) Got What It Takes To Become A Multi-Bagger?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. With that in mind, the ROCE of Amir Marketing and Investments in Agriculture (TLV:AMRK) looks decent, right now, so lets see what the trend of returns can tell us.

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

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. Analysts use this formula to calculate it for Amir Marketing and Investments in Agriculture:

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

0.13 = ₪45m ÷ (₪759m - ₪413m) (Based on the trailing twelve months to June 2020).

So, Amir Marketing and Investments in Agriculture has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 6.9% generated by the Trade Distributors industry.

See our latest analysis for Amir Marketing and Investments in Agriculture

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'd like to look at how Amir Marketing and Investments in Agriculture has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 13% and the business has deployed 29% more capital into its operations. 13% is a pretty standard return, and it provides some comfort knowing that Amir Marketing and Investments in Agriculture has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

On a separate but related note, it's important to know that Amir Marketing and Investments in Agriculture has a current liabilities to total assets ratio of 54%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From Amir Marketing and Investments in Agriculture's ROCE

To sum it up, Amir Marketing and Investments in Agriculture has simply been reinvesting capital steadily, at those decent rates of return. And given the stock has only risen 24% over the last five years, we'd suspect the market is beginning to recognize these trends. So because of the trends we're seeing, we'd recommend looking further into this stock to see if it has the makings of a multi-bagger.

One final note, you should learn about the 4 warning signs we've spotted with Amir Marketing and Investments in Agriculture (including 1 which is is concerning) .

While Amir Marketing and Investments in Agriculture 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.

If you decide to trade Amir Marketing and Investments in Agriculture, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.