Does Carmit Candy Industries (TLV:CRMT) Have The Makings Of A Multi-Bagger?

What trends should we look for it we want to identify stocks that can 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Carmit Candy Industries' (TLV:CRMT) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Carmit Candy Industries:

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

0.10 = ₪9.9m ÷ (₪184m - ₪88m) (Based on the trailing twelve months to June 2020).

Thus, Carmit Candy Industries has an ROCE of 10%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Food industry average of 12%.

View our latest analysis for Carmit Candy Industries

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Carmit Candy Industries' past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Carmit Candy Industries Tell Us?

Investors would be pleased with what's happening at Carmit Candy Industries. Over the last five years, returns on capital employed have risen substantially to 10%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 51%. So we're very much inspired by what we're seeing at Carmit Candy Industries thanks to its ability to profitably reinvest capital.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 48% of its operations, which isn't ideal. And with current liabilities at those levels, that's pretty high.

Our Take On Carmit Candy Industries' ROCE

All in all, it's terrific to see that Carmit Candy Industries is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 167% 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 Carmit Candy Industries can keep these trends up, it could have a bright future ahead.

Carmit Candy Industries does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is a bit unpleasant...

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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