Stock Analysis

Investors Will Want Delta Galil Industries' (TLV:DELT) Growth In ROCE To Persist

TASE:DELG
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What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Delta Galil Industries (TLV:DELT) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the 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)

0.15 = US$191m ÷ (US$1.8b - US$552m) (Based on the trailing twelve months to March 2022).

Thus, Delta Galil Industries has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Luxury industry average of 10% it's much better.

Check out our latest analysis for Delta Galil Industries

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TASE:DELT Return on Capital Employed June 24th 2022

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 want to delve into the historical earnings, revenue and cash flow of Delta Galil Industries, check out these free graphs here.

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

We like the trends that we're seeing from Delta Galil Industries. The data shows that returns on capital have increased substantially over the last five years to 15%. Basically the business is earning more per dollar of capital invested and in addition to that, 82% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Delta Galil Industries' ROCE

All in all, it's terrific to see that Delta Galil Industries is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 77% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

Delta Galil Industries does have some risks though, and we've spotted 2 warning signs for Delta Galil Industries that you might be interested in.

While Delta Galil Industries may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

Valuation is complex, but we're helping make it simple.

Find out whether Delta Galil Industries is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.