Energix - Renewable Energies (TLV:ENRG) Has Some Way To Go To Become A Multi-Bagger

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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 briefly looking over the numbers, we don't think Energix - Renewable Energies (TLV:ENRG) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for Energix - Renewable Energies, this is the formula:

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

0.044 = ₪404m ÷ (₪11b - ₪2.0b) (Based on the trailing twelve months to December 2024).

So, Energix - Renewable Energies has an ROCE of 4.4%. On its own that's a low return, but compared to the average of 2.6% generated by the Renewable Energy industry, it's much better.

See our latest analysis for Energix - Renewable Energies

Historical performance is a great place to start when researching a stock so above you can see the gauge for Energix - Renewable Energies' ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Energix - Renewable Energies.

What Does the ROCE Trend For Energix - Renewable Energies Tell Us?

There are better returns on capital out there than what we're seeing at Energix - Renewable Energies. The company has employed 295% more capital in the last five years, and the returns on that capital have remained stable at 4.4%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

In Conclusion...

In conclusion, Energix - Renewable Energies has been investing more capital into the business, but returns on that capital haven't increased. Unsurprisingly, the stock has only gained 7.9% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

If you want to know some of the risks facing Energix - Renewable Energies we've found 3 warning signs (2 are potentially serious!) that you should be aware of before investing here.

While Energix - Renewable Energies 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.