Delek Group (TLV:DLEKG) Might Have The Makings Of A Multi-Bagger

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Delek Group (TLV:DLEKG) and its trend of ROCE, we really liked what we saw.

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. To calculate this metric for Delek Group, this is the formula:

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

0.077 = ₪3.0b ÷ (₪47b - ₪8.1b) (Based on the trailing twelve months to September 2024).

Thus, Delek Group has an ROCE of 7.7%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 11%.

View our latest analysis for Delek Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Delek Group's ROCE against it's prior returns. If you'd like to look at how Delek Group has performed in the past in other metrics, you can view this free graph of Delek Group's past earnings, revenue and cash flow.

So How Is Delek Group's ROCE Trending?

Delek Group is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 184% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

One more thing to note, Delek Group has decreased current liabilities to 17% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

The Bottom Line On Delek Group's ROCE

As discussed above, Delek Group appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 51% return over the last five years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to continue researching Delek Group, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Delek Group 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.

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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.