The Returns At CI Systems (Israel) (TLV:CISY) Aren't Growing

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Although, when we looked at CI Systems (Israel) (TLV:CISY), it didn't seem to tick all of these boxes.

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 CI Systems (Israel):

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

0.084 = US$1.6m ÷ (US$27m - US$8.1m) (Based on the trailing twelve months to December 2021).

Thus, CI Systems (Israel) has an ROCE of 8.4%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 12%.

See our latest analysis for CI Systems (Israel)

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

What The Trend Of ROCE Can Tell Us

There are better returns on capital out there than what we're seeing at CI Systems (Israel). Over the past five years, ROCE has remained relatively flat at around 8.4% and the business has deployed 56% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

In Conclusion...

In summary, CI Systems (Israel) has simply been reinvesting capital and generating the same low rate of return as before. Although the market must be expecting these trends to improve because the stock has gained 59% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

On a final note, we found 2 warning signs for CI Systems (Israel) (1 is significant) you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.