We Like These Underlying Trends At Golf & Co Group (TLV:GOLF)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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 on that note, Golf & Co Group (TLV:GOLF) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

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 Golf & Co Group is:

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

0.061 = ₪47m ÷ (₪1.1b - ₪295m) (Based on the trailing twelve months to September 2020).

Therefore, Golf & Co Group has an ROCE of 6.2%. In absolute terms, that's a low return but it's around the Specialty Retail industry average of 6.5%.

Check out our latest analysis for Golf & Co Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Golf & Co Group's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Golf & Co Group, check out these free graphs here.

What Does the ROCE Trend For Golf & Co Group Tell Us?

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 data shows that returns on capital have increased substantially over the last five years to 6.2%. The amount of capital employed has increased too, by 158%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

One more thing to note, Golf & Co Group has decreased current liabilities to 28% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

In Conclusion...

All in all, it's terrific to see that Golf & Co Group is reaping the rewards from prior investments and is growing its capital base. Considering the stock has delivered 17% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

Golf & Co Group does have some risks though, and we've spotted 3 warning signs for Golf & Co Group that you might be interested in.

While Golf & Co Group may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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