STG International (TLV:STG) Shareholders Will Want The ROCE Trajectory To Continue

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in STG International's (TLV:STG) returns on capital, so let's have a look.

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 STG International:

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

0.17 = ₪25m ÷ (₪191m - ₪42m) (Based on the trailing twelve months to June 2024).

Therefore, STG International has an ROCE of 17%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Electronic industry average of 16%.

View our latest analysis for STG International

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

The Trend Of ROCE

STG International is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 17%. The amount of capital employed has increased too, by 102%. So we're very much inspired by what we're seeing at STG International thanks to its ability to profitably reinvest capital.

The Bottom Line On STG International's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what STG International has. Since the stock has returned a staggering 330% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if STG International can keep these trends up, it could have a bright future ahead.

STG International does have some risks though, and we've spotted 2 warning signs for STG International that you might be interested in.

While STG International isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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.