Returns At Discount Investment (TLV:DISI) Are On The Way Up

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Discount Investment (TLV:DISI) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Discount Investment:

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

0.051 = ₪1.3b ÷ (₪33b - ₪8.3b) (Based on the trailing twelve months to March 2023).

Thus, Discount Investment has an ROCE of 5.1%. On its own, that's a low figure but it's around the 5.9% average generated by the Industrials industry.

View our latest analysis for Discount Investment

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

What Does the ROCE Trend For Discount Investment Tell Us?

Discount Investment is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 26% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

What We Can Learn From Discount Investment's ROCE

To sum it up, Discount Investment is collecting higher returns from the same amount of capital, and that's impressive. Given the stock has declined 65% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you want to know some of the risks facing Discount Investment we've found 3 warning signs (1 is a bit concerning!) that you should be aware of before investing here.

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. 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.