Meshulam Levinstein Contracting & Engineering (TLV:LEVI) Is Doing The Right Things To Multiply Its Share Price

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Meshulam Levinstein Contracting & Engineering (TLV:LEVI) looks quite promising in regards to its trends of return on capital.

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. Analysts use this formula to calculate it for Meshulam Levinstein Contracting & Engineering:

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

0.064 = ₪116m ÷ (₪2.5b - ₪658m) (Based on the trailing twelve months to December 2020).

So, Meshulam Levinstein Contracting & Engineering has an ROCE of 6.4%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 9.8%.

View our latest analysis for Meshulam Levinstein Contracting & Engineering

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're interested in investigating Meshulam Levinstein Contracting & Engineering's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 6.4%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 27%. So we're very much inspired by what we're seeing at Meshulam Levinstein Contracting & Engineering thanks to its ability to profitably reinvest capital.

The Bottom Line On Meshulam Levinstein Contracting & Engineering's ROCE

In summary, it's great to see that Meshulam Levinstein Contracting & Engineering can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

Meshulam Levinstein Contracting & Engineering does have some risks, we noticed 4 warning signs (and 1 which is significant) we think you should know about.

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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