The Trend Of High Returns At Palram Industries (1990) (TLV:PLRM) Has Us Very Interested

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. And in light of that, the trends we're seeing at Palram Industries (1990)'s (TLV:PLRM) look very promising so lets take a look.

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. Analysts use this formula to calculate it for Palram Industries (1990):

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

0.21 = ₪263m ÷ (₪1.8b - ₪539m) (Based on the trailing twelve months to June 2022).

Thus, Palram Industries (1990) has an ROCE of 21%. On its own, that's a very good return and it's on par with the returns earned by companies in a similar industry.

Check out our latest analysis for Palram Industries (1990)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Palram Industries (1990)'s ROCE against it's prior returns. If you're interested in investigating Palram Industries (1990)'s past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Palram Industries (1990) Tell Us?

Palram Industries (1990) is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 21%. Basically the business is earning more per dollar of capital invested and in addition to that, 65% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Key Takeaway

To sum it up, Palram Industries (1990) has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a solid 69% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One final note, you should learn about the 2 warning signs we've spotted with Palram Industries (1990) (including 1 which is a bit unpleasant) .

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.