What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. That's why when we briefly looked at Y.Z. Queenco's (TLV:QNCO) ROCE trend, we were pretty happy with what we saw.
Understanding Return On Capital Employed (ROCE)
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Y.Z. Queenco:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = ₪17m ÷ (₪193m - ₪38m) (Based on the trailing twelve months to June 2023).
So, Y.Z. Queenco has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Hospitality industry average of 9.9%.
See our latest analysis for Y.Z. Queenco
Historical performance is a great place to start when researching a stock so above you can see the gauge for Y.Z. Queenco's ROCE against it's prior returns. If you'd like to look at how Y.Z. Queenco has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What Does the ROCE Trend For Y.Z. Queenco Tell Us?
The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 27% more capital in the last five years, and the returns on that capital have remained stable at 11%. Since 11% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
The Key Takeaway
The main thing to remember is that Y.Z. Queenco has proven its ability to continually reinvest at respectable rates of return. Yet over the last five years the stock has declined 66%, so the decline might provide an opening. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.
One final note, you should learn about the 3 warning signs we've spotted with Y.Z. Queenco (including 1 which is concerning) .
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.
About TASE:QNCO
Flawless balance sheet with solid track record.
