Bezeq The Israel Telecommunication (TLV:BEZQ) Hasn't Managed To Accelerate Its Returns

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Bezeq The Israel Telecommunication (TLV:BEZQ) 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)

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 Bezeq The Israel Telecommunication is:

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

0.18 = ₪1.8b ÷ (₪14b - ₪3.9b) (Based on the trailing twelve months to March 2022).

Thus, Bezeq The Israel Telecommunication has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 10% generated by the Telecom industry.

Check out our latest analysis for Bezeq The Israel Telecommunication

Above you can see how the current ROCE for Bezeq The Israel Telecommunication compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Bezeq The Israel Telecommunication.

What Can We Tell From Bezeq The Israel Telecommunication's ROCE Trend?

Over the past five years, Bezeq The Israel Telecommunication's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at Bezeq The Israel Telecommunication in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

The Bottom Line

In summary, Bezeq The Israel Telecommunication isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And with the stock having returned a mere 34% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

On a final note, we've found 1 warning sign for Bezeq The Israel Telecommunication that we think you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.