Returns Are Gaining Momentum At Amos Luzon Development and Energy Group (TLV:LUZN)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. So when we looked at Amos Luzon Development and Energy Group (TLV:LUZN) and its trend of ROCE, we really liked what we saw.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Amos Luzon Development and Energy Group:

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

0.14 = ₪121m ÷ (₪1.5b - ₪591m) (Based on the trailing twelve months to September 2021).

So, Amos Luzon Development and Energy Group has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Construction industry average of 9.4% it's much better.

View our latest analysis for Amos Luzon Development and Energy Group

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

How Are Returns Trending?

Amos Luzon Development and Energy Group has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 14% which is a sight for sore eyes. In addition to that, Amos Luzon Development and Energy Group is employing 67% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

One more thing to note, Amos Luzon Development and Energy Group has decreased current liabilities to 40% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Bottom Line

In summary, it's great to see that Amos Luzon Development and Energy Group has managed to break into profitability and is continuing to reinvest in its business. And a remarkable 157% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a final note, we've found 2 warning signs for Amos Luzon Development and Energy Group that we think you should be aware of.

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.