Will the Promising Trends At Y.Z. Queenco (TLV:QNCO) Continue?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. Speaking of which, we noticed some great changes in Y.Z. Queenco's (TLV:QNCO) returns on capital, so let's have a look.

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. 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)

0.024 = ₪2.9m ÷ (₪174m - ₪50m) (Based on the trailing twelve months to June 2020).

So, Y.Z. Queenco has an ROCE of 2.4%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 3.2%.

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're interested in investigating Y.Z. Queenco's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

The fact that Y.Z. Queenco is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 2.4% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Y.Z. Queenco is utilizing 38% more capital than it was five years ago. 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, Y.Z. Queenco has decreased current liabilities to 29% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Y.Z. Queenco has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

In Conclusion...

In summary, it's great to see that Y.Z. Queenco has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a staggering 122% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Y.Z. Queenco can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 2 warning signs facing Y.Z. Queenco that you might find interesting.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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This article by Simply Wall St is general in nature. 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.
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