Stock Analysis

Veridis Environment (TLV:VRDS) Has Some Way To Go To Become A Multi-Bagger

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If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Veridis Environment (TLV:VRDS) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Veridis Environment:

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

0.074 = ₪99m ÷ (₪1.7b - ₪373m) (Based on the trailing twelve months to September 2022).

Therefore, Veridis Environment has an ROCE of 7.4%. In absolute terms, that's a low return but it's around the Commercial Services industry average of 8.0%.

See our latest analysis for Veridis Environment

TASE:VRDS Return on Capital Employed March 24th 2023

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

How Are Returns Trending?

Things have been pretty stable at Veridis Environment, with its capital employed and returns on that capital staying somewhat the same for the last two years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Veridis Environment to be a multi-bagger going forward.

In Conclusion...

In summary, Veridis Environment isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And investors appear hesitant that the trends will pick up because the stock has fallen 49% in the last year. Therefore based on the analysis done in this article, we don't think Veridis Environment has the makings of a multi-bagger.

If you want to continue researching Veridis Environment, you might be interested to know about the 2 warning signs that our analysis has discovered.

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.