Capital Investments At Danel (Adir Yeoshua) (TLV:DANE) Point To A Promising Future

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at Danel (Adir Yeoshua)'s (TLV:DANE) ROCE trend, we were very happy with what we saw.

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 Danel (Adir Yeoshua), this is the formula:

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

0.30 = ₪185m ÷ (₪1.0b - ₪390m) (Based on the trailing twelve months to December 2020).

Therefore, Danel (Adir Yeoshua) has an ROCE of 30%. In absolute terms that's a great return and it's even better than the Professional Services industry average of 14%.

See our latest analysis for Danel (Adir Yeoshua)

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'd like to look at how Danel (Adir Yeoshua) has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Danel (Adir Yeoshua) Tell Us?

We'd be pretty happy with returns on capital like Danel (Adir Yeoshua). Over the past five years, ROCE has remained relatively flat at around 30% and the business has deployed 185% more capital into its operations. Now considering ROCE is an attractive 30%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. You'll see this when looking at well operated businesses or favorable business models.

In Conclusion...

In short, we'd argue Danel (Adir Yeoshua) has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. On top of that, the stock has rewarded shareholders with a remarkable 550% return to those who've held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Danel (Adir Yeoshua) does have some risks though, and we've spotted 1 warning sign for Danel (Adir Yeoshua) that you might be interested in.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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This article by Simply Wall St is general in nature. 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.
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