Slowing Rates Of Return At Delta Galil Industries (TLV:DELG) Leave Little Room For Excitement

There are a few key trends to look for if we want to identify the next multi-bagger. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. That's why when we briefly looked at Delta Galil Industries' (TLV:DELG) ROCE trend, we were pretty happy with what we saw.

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. 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)

0.11 = US$145m ÷ (US$1.8b - US$482m) (Based on the trailing twelve months to December 2023).

So, Delta Galil Industries has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Luxury industry average of 9.1% it's much better.

See 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're interested in investigating Delta Galil Industries' past further, check out this free graph covering Delta Galil Industries' past earnings, revenue and cash flow.

What Can We Tell From Delta Galil Industries' ROCE Trend?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 57% more capital in the last five years, and the returns on that capital have remained stable at 11%. 11% is a pretty standard return, and it provides some comfort knowing that Delta Galil Industries has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

What We Can Learn From Delta Galil Industries' ROCE

To sum it up, Delta Galil Industries has simply been reinvesting capital steadily, at those decent rates of return. Therefore it's no surprise that shareholders have earned a respectable 59% return if they held over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

Delta Galil Industries could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for DELG on our platform quite valuable.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.