Return Trends At Bezeq The Israel Telecommunication (TLV:BEZQ) Aren't Appealing

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Bezeq The Israel Telecommunication (TLV:BEZQ), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed 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 - ₪3.4b) (Based on the trailing twelve months to September 2021).

Therefore, Bezeq The Israel Telecommunication has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Telecom industry average of 10% it's much better.

See 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, you can check out the forecasts from the analysts covering Bezeq The Israel Telecommunication here for free.

What Does the ROCE Trend For Bezeq The Israel Telecommunication Tell Us?

There hasn't been much to report for Bezeq The Israel Telecommunication's returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if Bezeq The Israel Telecommunication doesn't end up being a multi-bagger in a few years time. This probably explains why Bezeq The Israel Telecommunication is paying out 53% of its income to shareholders in the form of dividends. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

The Key Takeaway

In summary, Bezeq The Israel Telecommunication isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Unsurprisingly then, the total return to shareholders over the last five years has been flat. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

If you'd like to know about the risks facing Bezeq The Israel Telecommunication, we've discovered 2 warning signs that you should be aware of.

While Bezeq The Israel Telecommunication 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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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.