The Returns At Synel M.L.L Payway (TLV:SNEL) Provide Us With Signs Of What's To Come

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Having said that, from a first glance at Synel M.L.L Payway (TLV:SNEL) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 Synel M.L.L Payway:

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

0.063 = ₪47m ÷ (₪846m - ₪100m) (Based on the trailing twelve months to September 2020).

Thus, Synel M.L.L Payway has an ROCE of 6.3%. On its own, that's a low figure but it's around the 7.7% average generated by the Software industry.

Check out our latest analysis for Synel M.L.L Payway

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

What Does the ROCE Trend For Synel M.L.L Payway Tell Us?

There are better returns on capital out there than what we're seeing at Synel M.L.L Payway. The company has consistently earned 6.3% for the last five years, and the capital employed within the business has risen 63% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line On Synel M.L.L Payway's ROCE

In summary, Synel M.L.L Payway has simply been reinvesting capital and generating the same low rate of return as before. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 159% gain to shareholders who have held 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 4 warning signs for Synel M.L.L Payway (1 is a bit concerning) you should be aware of.

While Synel M.L.L Payway 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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This article by Simply Wall St is general in nature. 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.
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