Will Bezeq The Israel Telecommunication (TLV:BEZQ) Multiply In Value Going Forward?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Bezeq The Israel Telecommunication (TLV:BEZQ), they do have a high ROCE, but we weren't exactly elated from how returns are trending.

What is 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. Analysts use this formula to calculate it for Bezeq The Israel Telecommunication:

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

0.24 = ₪2.4b ÷ (₪14b - ₪3.6b) (Based on the trailing twelve months to September 2020).

Thus, Bezeq The Israel Telecommunication has an ROCE of 24%. That's a fantastic return and not only that, it outpaces the average of 9.7% earned by companies in a similar industry.

See our latest analysis for Bezeq The Israel Telecommunication

In the above chart we have measured Bezeq The Israel Telecommunication's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Bezeq The Israel Telecommunication.

So How Is Bezeq The Israel Telecommunication's ROCE Trending?

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. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So while the current operations are delivering respectable returns, unless capital employed increases we'd be hard-pressed to believe it's a multi-bagger going forward. With fewer investment opportunities, it makes sense that Bezeq The Israel Telecommunication has been paying out a decent 50% of its earnings to shareholders. 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 decent returns on the same amount of capital employed. Since the stock has declined 52% over the last five years, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

If you want to know some of the risks facing Bezeq The Israel Telecommunication we've found 3 warning signs (1 is a bit concerning!) that you should be aware of before investing here.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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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