Slowing Rates Of Return At Meshulam Levinstein Contracting & Engineering (TLV:LEVI) Leave Little Room For Excitement

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Meshulam Levinstein Contracting & Engineering (TLV:LEVI), we don't think it's current trends fit the mold of a multi-bagger.

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. The formula for this calculation on Meshulam Levinstein Contracting & Engineering is:

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

0.049 = ₪128m ÷ (₪3.7b - ₪1.1b) (Based on the trailing twelve months to June 2024).

Therefore, Meshulam Levinstein Contracting & Engineering has an ROCE of 4.9%. Ultimately, that's a low return and it under-performs the Construction industry average of 8.1%.

Check out our latest analysis for Meshulam Levinstein Contracting & Engineering

Historical performance is a great place to start when researching a stock so above you can see the gauge for Meshulam Levinstein Contracting & Engineering's ROCE against it's prior returns. If you're interested in investigating Meshulam Levinstein Contracting & Engineering's past further, check out this free graph covering Meshulam Levinstein Contracting & Engineering's past earnings, revenue and cash flow.

What Can We Tell From Meshulam Levinstein Contracting & Engineering's ROCE Trend?

The returns on capital haven't changed much for Meshulam Levinstein Contracting & Engineering in recent years. The company has employed 43% more capital in the last five years, and the returns on that capital have remained stable at 4.9%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Key Takeaway

Long story short, while Meshulam Levinstein Contracting & Engineering has been reinvesting its capital, the returns that it's generating haven't increased. Although the market must be expecting these trends to improve because the stock has gained 71% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Meshulam Levinstein Contracting & Engineering does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

While Meshulam Levinstein Contracting & Engineering 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.