The Return Trends At Modiin Energy-Limited Partnership (TLV:MDIN) Look Promising

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Modiin Energy-Limited Partnership (TLV:MDIN) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Modiin Energy-Limited Partnership is:

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

0.016 = US$894k ÷ (US$66m - US$10m) (Based on the trailing twelve months to September 2022).

Thus, Modiin Energy-Limited Partnership has an ROCE of 1.6%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 13%.

See our latest analysis for Modiin Energy-Limited Partnership

Historical performance is a great place to start when researching a stock so above you can see the gauge for Modiin Energy-Limited Partnership's ROCE against it's prior returns. If you'd like to look at how Modiin Energy-Limited Partnership 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 Modiin Energy-Limited Partnership Tell Us?

We're delighted to see that Modiin Energy-Limited Partnership is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 1.6% which is a sight for sore eyes. In addition to that, Modiin Energy-Limited Partnership is employing 628% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

Our Take On Modiin Energy-Limited Partnership's ROCE

Overall, Modiin Energy-Limited Partnership gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And since the stock has fallen 55% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

Modiin Energy-Limited Partnership does have some risks though, and we've spotted 3 warning signs for Modiin Energy-Limited Partnership that you might be interested in.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.