Ackerstein Group (TLV:ACKR) Has Some Way To Go To Become A Multi-Bagger

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Ackerstein Group (TLV:ACKR) and its ROCE trend, we weren't exactly thrilled.

What Is 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. The formula for this calculation on Ackerstein Group is:

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

0.082 = ₪121m ÷ (₪1.8b - ₪355m) (Based on the trailing twelve months to March 2024).

Therefore, Ackerstein Group has an ROCE of 8.2%. Even though it's in line with the industry average of 8.1%, it's still a low return by itself.

Check out our latest analysis for Ackerstein Group

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 Ackerstein Group's past further, check out this free graph covering Ackerstein Group's past earnings, revenue and cash flow.

So How Is Ackerstein Group's ROCE Trending?

The returns on capital haven't changed much for Ackerstein Group in recent years. The company has consistently earned 8.2% for the last four years, and the capital employed within the business has risen 64% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Key Takeaway

In summary, Ackerstein Group has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has gained an impressive 32% over the last three years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

Ackerstein Group does have some risks though, and we've spotted 1 warning sign for Ackerstein Group that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.