Slowing Rates Of Return At Malam - Team (TLV:MLTM) Leave Little Room For Excitement

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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, when we ran our eye over Malam - Team's (TLV:MLTM) trend of ROCE, we liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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 Malam - Team:

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

0.14 = ₪196m ÷ (₪2.4b - ₪1.1b) (Based on the trailing twelve months to September 2024).

Therefore, Malam - Team has an ROCE of 14%. In isolation, that's a pretty standard return but against the IT industry average of 20%, it's not as good.

View our latest analysis for Malam - Team

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

How Are Returns Trending?

While the returns on capital are good, they haven't moved much. The company has consistently earned 14% for the last five years, and the capital employed within the business has risen 89% in that time. Since 14% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

On a side note, Malam - Team's current liabilities are still rather high at 44% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line

To sum it up, Malam - Team has simply been reinvesting capital steadily, at those decent rates of return. And long term investors would be thrilled with the 101% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Malam - Team does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is concerning...

While Malam - Team 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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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.