The Underlying Trends At G1 Secure Solutions (TLV:GOSS) Look Strong

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of G1 Secure Solutions (TLV:GOSS) looks attractive right now, so lets see what the trend of returns can tell us.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for G1 Secure Solutions:

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

0.32 = ₪60m ÷ (₪447m - ₪262m) (Based on the trailing twelve months to September 2020).

So, G1 Secure Solutions has an ROCE of 32%. That's a fantastic return and not only that, it outpaces the average of 8.1% earned by companies in a similar industry.

See our latest analysis for G1 Secure Solutions

Historical performance is a great place to start when researching a stock so above you can see the gauge for G1 Secure Solutions' ROCE against it's prior returns. If you'd like to look at how G1 Secure Solutions has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

It's hard not to be impressed by G1 Secure Solutions' returns on capital. Over the past three years, ROCE has remained relatively flat at around 32% and the business has deployed 43% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

On a side note, G1 Secure Solutions' current liabilities are still rather high at 59% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On G1 Secure Solutions' ROCE

In summary, we're delighted to see that G1 Secure Solutions has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And the stock has followed suit returning a meaningful 15% to shareholders over the last year. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

On a separate note, we've found 2 warning signs for G1 Secure Solutions you'll probably want to know about.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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