Stock Analysis

Investors Will Want Endymed's (TLV:ENDY) Growth In ROCE To Persist

TASE:ENDY
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If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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 Endymed's (TLV:ENDY) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

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 Endymed:

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

0.035 = US$368k ÷ (US$14m - US$3.2m) (Based on the trailing twelve months to December 2020).

Thus, Endymed has an ROCE of 3.5%. In absolute terms, that's a low return and it also under-performs the Medical Equipment industry average of 4.9%.

Check out our latest analysis for Endymed

roce
TASE:ENDY Return on Capital Employed August 2nd 2021

Historical performance is a great place to start when researching a stock so above you can see the gauge for Endymed's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Endymed, check out these free graphs here.

What Does the ROCE Trend For Endymed Tell Us?

We're delighted to see that Endymed 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 3.5% which is a sight for sore eyes. In addition to that, Endymed is employing 27% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

Our Take On Endymed's ROCE

Overall, Endymed gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Given the stock has declined 40% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing, we've spotted 4 warning signs facing Endymed that you might find interesting.

While Endymed 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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