The Return Trends At Plastopil Hazorea (TLV:PPIL) Look Promising

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Plastopil Hazorea (TLV:PPIL) and its trend of ROCE, we really liked what we saw.

Understanding 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. Analysts use this formula to calculate it for Plastopil Hazorea:

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

0.078 = ₪12m ÷ (₪208m - ₪53m) (Based on the trailing twelve months to December 2020).

Thus, Plastopil Hazorea has an ROCE of 7.8%. Ultimately, that's a low return and it under-performs the Packaging industry average of 9.9%.

Check out our latest analysis for Plastopil Hazorea

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

So How Is Plastopil Hazorea's ROCE Trending?

Plastopil Hazorea's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 195% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

What We Can Learn From Plastopil Hazorea's ROCE

In summary, we're delighted to see that Plastopil Hazorea has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has only returned 33% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

On a final note, we've found 2 warning signs for Plastopil Hazorea that we think you should be aware of.

While Plastopil Hazorea 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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