Returns Are Gaining Momentum At Plastopil Hazorea (TLV:PPIL)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. So on that note, Plastopil Hazorea (TLV:PPIL) looks quite promising in regards to its trends of return on capital.

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 Plastopil Hazorea:

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

0.058 = ₪9.7m ÷ (₪234m - ₪68m) (Based on the trailing twelve months to June 2022).

Thus, Plastopil Hazorea has an ROCE of 5.8%. In absolute terms, that's a low return and it also under-performs the Packaging industry average of 9.4%.

Our analysis indicates that PPIL is potentially overvalued!

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 Plastopil Hazorea's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Plastopil Hazorea's ROCE Trend?

Plastopil Hazorea has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 5.8% on its capital. In addition to that, Plastopil Hazorea is employing 43% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Bottom Line

In summary, it's great to see that Plastopil Hazorea has managed to break into profitability and is continuing to reinvest in its business. Since the stock has only returned 8.0% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

Plastopil Hazorea does have some risks, we noticed 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

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.