There Are Reasons To Feel Uneasy About Sano Bruno's Enterprises' (TLV:SANO1) Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. However, after briefly looking over the numbers, we don't think Sano Bruno's Enterprises (TLV:SANO1) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. To calculate this metric for Sano Bruno's Enterprises, this is the formula:

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

0.13 = ₪244m ÷ (₪2.3b - ₪393m) (Based on the trailing twelve months to September 2023).

So, Sano Bruno's Enterprises has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 8.4% generated by the Household Products industry.

Check out our latest analysis for Sano Bruno's Enterprises

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

What Can We Tell From Sano Bruno's Enterprises' ROCE Trend?

On the surface, the trend of ROCE at Sano Bruno's Enterprises doesn't inspire confidence. To be more specific, ROCE has fallen from 18% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line

In summary, Sano Bruno's Enterprises is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has gained an impressive 63% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Sano Bruno's Enterprises could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

While Sano Bruno's Enterprises isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.