Stock Analysis

Matrix IT (TLV:MTRX) Is Reinvesting To Multiply In Value

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TASE:MTRX
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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at Matrix IT's (TLV:MTRX) ROCE trend, we were very happy with what we saw.

What Is Return On Capital Employed (ROCE)?

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 Matrix IT is:

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

0.21 = ₪341m ÷ (₪3.7b - ₪2.0b) (Based on the trailing twelve months to June 2022).

Thus, Matrix IT has an ROCE of 21%. In absolute terms that's a very respectable return and compared to the IT industry average of 23% it's pretty much on par.

See our latest analysis for Matrix IT

roce
TASE:MTRX Return on Capital Employed September 29th 2022

Historical performance is a great place to start when researching a stock so above you can see the gauge for Matrix IT's ROCE against it's prior returns. If you'd like to look at how Matrix IT has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Matrix IT's ROCE Trend?

In terms of Matrix IT's history of ROCE, it's quite impressive. The company has consistently earned 21% for the last five years, and the capital employed within the business has risen 68% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. You'll see this when looking at well operated businesses or favorable business models.

On a separate but related note, it's important to know that Matrix IT has a current liabilities to total assets ratio of 55%, which we'd consider pretty high. 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. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On Matrix IT's ROCE

Matrix IT has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And long term investors would be thrilled with the 156% return they've received over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you want to continue researching Matrix IT, you might be interested to know about the 3 warning signs that our analysis has discovered.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

Valuation is complex, but we're helping make it simple.

Find out whether Matrix IT is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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About TASE:MTRX

Matrix IT

Matrix IT Ltd. provides information technology (IT) services worldwide.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation2
Future Growth0
Past Performance4
Financial Health4
Dividends2

Read more about these checks in the individual report sections or in our analysis model.

Adequate balance sheet with proven track record.