Returns On Capital At Hamat Group (TLV:HAMAT) Paint A Concerning Picture

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Hamat Group (TLV:HAMAT), we don't think it's current trends fit the mold of a multi-bagger.

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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. To calculate this metric for Hamat Group, this is the formula:

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

0.021 = ₪18m ÷ (₪1.6b - ₪670m) (Based on the trailing twelve months to March 2025).

Therefore, Hamat Group has an ROCE of 2.1%. Ultimately, that's a low return and it under-performs the Building industry average of 5.0%.

View our latest analysis for Hamat Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Hamat Group's ROCE against it's prior returns. If you'd like to look at how Hamat Group has performed in the past in other metrics, you can view this free graph of Hamat Group's past earnings, revenue and cash flow.

What Can We Tell From Hamat Group's ROCE Trend?

On the surface, the trend of ROCE at Hamat Group doesn't inspire confidence. Over the last five years, returns on capital have decreased to 2.1% from 9.5% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

Another thing to note, Hamat Group has a high ratio of current liabilities to total assets of 43%. 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. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line

To conclude, we've found that Hamat Group is reinvesting in the business, but returns have been falling. Although the market must be expecting these trends to improve because the stock has gained 85% over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 5 warning signs for Hamat Group (of which 2 make us uncomfortable!) that you should know about.

While Hamat Group 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.

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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.