Will The ROCE Trend At Suny Cellular Communication (TLV:SNCM) Continue?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. With that in mind, we've noticed some promising trends at Suny Cellular Communication (TLV:SNCM) so let's look a bit deeper.

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. Analysts use this formula to calculate it for Suny Cellular Communication:

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

0.12 = ₪45m ÷ (₪457m - ₪67m) (Based on the trailing twelve months to September 2020).

Therefore, Suny Cellular Communication has an ROCE of 12%. That's a pretty standard return and it's in line with the industry average of 12%.

Check out our latest analysis for Suny Cellular Communication

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

The Trend Of ROCE

The fact that Suny Cellular Communication is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 12% on its capital. And unsurprisingly, like most companies trying to break into the black, Suny Cellular Communication is utilizing 175% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

One more thing to note, Suny Cellular Communication has decreased current liabilities to 15% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

In Conclusion...

Overall, Suny Cellular Communication gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And a remarkable 573% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a final note, we found 3 warning signs for Suny Cellular Communication (1 is concerning) you should be aware of.

While Suny Cellular Communication 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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