Hamama Meir Trading (1996) (TLV:HMAM) Is Experiencing Growth In Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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, we've noticed some promising trends at Hamama Meir Trading (1996) (TLV:HMAM) so let's look a bit deeper.

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Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Hamama Meir Trading (1996) is:

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

0.081 = ₪8.1m ÷ (₪172m - ₪71m) (Based on the trailing twelve months to December 2024).

Thus, Hamama Meir Trading (1996) has an ROCE of 8.1%. In absolute terms, that's a low return and it also under-performs the Consumer Retailing industry average of 11%.

See our latest analysis for Hamama Meir Trading (1996)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Hamama Meir Trading (1996)'s ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Hamama Meir Trading (1996).

What Can We Tell From Hamama Meir Trading (1996)'s ROCE Trend?

Hamama Meir Trading (1996) has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 8.1% which is a sight for sore eyes. In addition to that, Hamama Meir Trading (1996) is employing 24% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

One more thing to note, Hamama Meir Trading (1996) has decreased current liabilities to 42% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see. Nevertheless, there are some potential risks the company is bearing with current liabilities that high, so just keep that in mind.

In Conclusion...

In summary, it's great to see that Hamama Meir Trading (1996) has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a solid 77% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Hamama Meir Trading (1996) does have some risks though, and we've spotted 1 warning sign for Hamama Meir Trading (1996) that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.