The Trends At Ginegar Plastic Products (TLV:GNGR) That You Should Know About

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. In light of that, when we looked at Ginegar Plastic Products (TLV:GNGR) and its ROCE trend, we weren't exactly thrilled.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Ginegar Plastic Products is:

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

0.094 = ₪34m ÷ (₪585m - ₪223m) (Based on the trailing twelve months to September 2020).

So, Ginegar Plastic Products has an ROCE of 9.4%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 16%.

Check out our latest analysis for Ginegar Plastic Products

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

So How Is Ginegar Plastic Products' ROCE Trending?

In terms of Ginegar Plastic Products' historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 17% 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 may take some time before the company starts to see any change in earnings from these investments.

On a related note, Ginegar Plastic Products has decreased its current liabilities to 38% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

Our Take On Ginegar Plastic Products' ROCE

In summary, Ginegar Plastic Products is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And with the stock having returned a mere 27% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you'd like to know more about Ginegar Plastic Products, we've spotted 3 warning signs, and 1 of them 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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