Does Plasto-Cargal Group (TLV:PLCR) Have The Makings Of A Multi-Bagger?

What are the early trends we should look for to identify a stock that could 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Plasto-Cargal Group (TLV:PLCR) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Plasto-Cargal Group, this is the formula:

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

0.053 = ₪36m ÷ (₪1.1b - ₪419m) (Based on the trailing twelve months to September 2020).

Thus, Plasto-Cargal Group has an ROCE of 5.3%. Ultimately, that's a low return and it under-performs the Packaging industry average of 10%.

See our latest analysis for Plasto-Cargal Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Plasto-Cargal Group's ROCE against it's prior returns. If you're interested in investigating Plasto-Cargal Group's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Plasto-Cargal Group's ROCE Trend?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The numbers show that in the last four years, the returns generated on capital employed have grown considerably to 5.3%. 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 27%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

In summary, it's great to see that Plasto-Cargal Group can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Given the stock has declined 44% in the last three 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 final note, you should learn about the 3 warning signs we've spotted with Plasto-Cargal Group (including 1 which is significant) .

While Plasto-Cargal Group 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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