Aran Research & Development (1982) (TLV:ARAN) Is Doing The Right Things To Multiply Its Share Price

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Aran Research & Development (1982) (TLV:ARAN) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Aran Research & Development (1982), this is the formula:

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

0.13 = ₪23m ÷ (₪254m - ₪84m) (Based on the trailing twelve months to June 2022).

So, Aran Research & Development (1982) has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 7.6% generated by the Commercial Services industry.

Our analysis indicates that ARAN is potentially undervalued!

Historical performance is a great place to start when researching a stock so above you can see the gauge for Aran Research & Development (1982)'s ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Aran Research & Development (1982), check out these free graphs here.

The Trend Of ROCE

Aran Research & Development (1982) 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 13% which is a sight for sore eyes. Not only that, but the company is utilizing 173% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

What We Can Learn From Aran Research & Development (1982)'s ROCE

Overall, Aran Research & Development (1982) gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Considering the stock has delivered 28% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

On a final note, we found 4 warning signs for Aran Research & Development (1982) (2 are concerning) you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.