Delta Galil Industries (TLV:DELG) Might Have The Makings Of A Multi-Bagger

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. So on that note, Delta Galil Industries (TLV:DELG) looks quite promising in regards to its trends of return on capital.

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 Delta Galil Industries, this is the formula:

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

0.12 = US$151m ÷ (US$1.7b - US$494m) (Based on the trailing twelve months to September 2023).

Thus, Delta Galil Industries has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 8.8% generated by the Luxury industry.

Check out our latest analysis for Delta Galil Industries

Historical performance is a great place to start when researching a stock so above you can see the gauge for Delta Galil Industries' ROCE against it's prior returns. If you'd like to look at how Delta Galil Industries 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

We like the trends that we're seeing from Delta Galil Industries. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 12%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 49%. So we're very much inspired by what we're seeing at Delta Galil Industries thanks to its ability to profitably reinvest capital.

In Conclusion...

To sum it up, Delta Galil Industries has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 72% return over the last five years. In light of that, we think it's worth looking further into this stock because if Delta Galil Industries can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 1 warning sign for Delta Galil Industries you'll probably want to know about.

While Delta Galil Industries isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.