Investors Could Be Concerned With Gold Bond Group's (TLV:GOLD) Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. However, after investigating Gold Bond Group (TLV:GOLD), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its 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)

0.014 = ₪14m ÷ (₪1.1b - ₪40m) (Based on the trailing twelve months to December 2023).

Thus, Gold Bond Group has an ROCE of 1.4%. Ultimately, that's a low return and it under-performs the Infrastructure industry average of 6.6%.

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.

So How Is Gold Bond Group's ROCE Trending?

When we looked at the ROCE trend at Gold Bond Group, we didn't gain much confidence. Around five years ago the returns on capital were 7.6%, but since then they've fallen to 1.4%. 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.

The Bottom Line 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. And with the stock having returned a mere 9.3% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you're still interested in Gold Bond Group it's worth checking out our FREE intrinsic value approximation for GOLD to see if it's trading at an attractive price in other respects.

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.