Here's What's Concerning About Gold Bond Group's (TLV:GOLD) Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Gold Bond Group (TLV:GOLD) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Gold Bond Group:

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

0.015 = ₪16m ÷ (₪1.1b - ₪44m) (Based on the trailing twelve months to September 2024).

So, Gold Bond Group has an ROCE of 1.5%. Ultimately, that's a low return and it under-performs the Infrastructure industry average of 6.5%.

View our latest analysis for Gold Bond Group

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

The Trend Of ROCE

In terms of Gold Bond Group's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 4.7%, but since then they've fallen to 1.5%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Gold Bond Group's ROCE

To conclude, we've found that Gold Bond Group is reinvesting in the business, but returns have been falling. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 177% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you'd like to know more about Gold Bond Group, we've spotted 2 warning signs, and 1 of them makes us a bit uncomfortable.

While Gold Bond Group 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.

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.